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Profit, loss not mutually exclusive to funds

By Zhang Yu (China Daily)
Updated: 2007-03-02 10:41

Wu Yan, 28, a new investor, is one of the lucky millions to have struck it good last year. Six months ago, the multinational company employee in Beijing knew little about stocks, let alone mutual funds. "My colleagues and friends influenced me to try investing in mutual funds, saying they were safe and profitable," she says.

Wu withdrew her 40,000-yuan ($5,168) deposits from banks in October and invested them in three funds. "I chose them on the tips of a colleague who is a veteran funds' investor. Many others have taken his advice on which funds to buy." She earned 8,000 yuan ($1,033) from her investment in just half a year. "One of my colleagues even doubled his investment," she says.

Wu confessed that most of her earlier choices had been blind. "No one ever detailed the risks involved. We only used to talk about how much profit we could make and never considered the risks seriously." But with the benchmark Shanghai index slumping to a 10-year, single-day low on February 27, Wu fears the fluctuations could result in loss for her. The Shanghai Composite Index dropped nearly 9 percent to close at 2,771 on Tuesday.

"One of my colleagues sold all his funds during the past several days, fearing a continuous drop in the market. I was anxious to know whether it was time for me to drop out of the market, too," Wu says.

The mutual fund market, however, seems to be maintaining its run.

Gone are the days when individual investors queued up for long hours to buy government bonds. Today, they flock to buy new stocks or mutual funds, says a clerk working for a trading outlet brokering CCB Principal's fund shares.

"Since late last year, the mutual fund market has begun to touch on the topic of risk control, something long neglected by investors," Zhang says. "We've met some clients who invested in funds with money borrowed from friends or relatives or even by mortgaging their houses That's rather irrational and dangerous."

Top securities regulators, too, sound worried over the risks individual investors either ignore or are unaware of. "Some investors don't have any idea of what mutual funds are and the risks involved in investing in them," China Securities Regulatory Commission Chairman Shang Fulin said at a meeting in January. Sang wants mutual fund companies to try their best to warn investors in advance about the risks involved. The investors should have full knowledge of the hazards, he said.

As Zhang says, investors were dealt a heavy blow a month ago when the Shanghai index fell by about 400 points within six trading days from January 31, to close at 2,541 on February 6. Quite a number of fund investors lost their money during that correction, the largest since 2006. "It should be an eye-opener for blind investors. They should have realized mutual funds don't always mean profit," Zhang says.

Investors can educate themselves about mutual funds through books, television broadcasts and websites. "Knowledge about how to invest in mutual funds is very important. Individuals would then be aware of the lurking risks and could eventually become mature investors," China Asset Management Co Vice-president Zhang Houqi says.

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