MAS Releases Guidelines for Capital Guaranteed Funds and Futures & Options Funds
26 October 1999...The Monetary Authority of Singapore (MAS) today issued two new sets of guidelines to regulate capital guaranteed funds, as well as futures and options funds sold to retail investors in Singapore. The guidelines, which take effect immediately, give guidance to fund managers on the operation and marketing of such specialised unit trusts in Singapore. MAS said that both sets of guidelines are in line with international practice and were formulated after taking into account comments received from the local fund management industry.
Guidelines for Capital Guaranteed Funds
2 Capital guaranteed funds are unit trusts that promise to return the full principal invested, usually after a certain period of time or at particular points of time. The capital guaranteed fund guidelines require that only those guaranteeing the full principal may call or market themselves as capital guaranteed funds. The guidelines also set out the conditions governing the guarantee given to investors in such funds.
3 Under the guidelines, every capital guaranteed fund must have a qualified guarantor, which is usually a bank of sound financial standing. In addition, the terms of such guarantee must be clearly disclosed to investors in the fund's prospectus.
4 While a fund is allowed to offer a guarantee not in accordance with the guidelines (e.g. providing only 50% principal guarantee or a guarantee as to income only), it must give prominent warning that it is not a guaranteed fund.
Guidelines for Futures and Options Funds
5 Futures and options funds are unit trusts that invest primarily in financial and/or commodity derivatives. The guidelines for futures and options funds have two main objectives. One is to ensure that adequate disclosures are made to prospective investors of the high risks of investing in such funds. Another is to lay down prudential requirements with respect to a fund's investments.
6 These requirements include portfolio diversification, and investments in options and futures contracts to be primarily exchange-traded. Managers of futures and options funds are also required to maintain at least 30% of the fund's assets in short-term, high-quality money market instruments to ensure that the fund can meet future margin calls if needed.
7 In addition, managers must disclose in the prospectus that futures and options funds are high risk instruments, as futures and options trading can lead to large losses over a short period of time, and that investment in such a fund is only appropriate for persons able and willing to take such high risks.
8 The new guidelines are incorporated as new appendices to the Handbook on Unit Trusts. The MAS has also incorporated Practice Directions Nos. 1 to 6 into the Handbook.