Investing Basics · Go deeper · Beginner
Connected to: What is an ETF?
What are fund certificates? How open-ended funds differ from ETFs
A fund certificate is your share of a fund: it shows you own part of the fund's capital, not the individual stocks it holds.
Its value is measured by NAV, the fund's net asset value per certificate, which rises and falls with the assets the fund owns.
Open-ended funds and ETFs trade differently: you buy and sell open-ended fund certificates with the fund at the NAV of each dealing period, while ETFs trade on the exchange at market prices.
Read the prospectus before choosing a fund, so you know what it invests in, what it charges, when it trades and how long you wait for your money.
What is a fund certificate?
In Vietnam, when you put money into an investment fund, you receive fund certificates (in Vietnamese, chứng chỉ quỹ). In many other markets the same idea is called fund units or mutual fund shares.
Under Vietnam's Law on Securities 2019 (page in Vietnamese), a fund certificate is a type of security that confirms an investor's ownership of a portion of the contributed capital of a securities investment fund.
Put simply, when you buy fund certificates, you pool your money with many other investors in one fund. A fund management company then invests that money in stocks, bonds or other assets, following the strategy the fund has published.
You do not directly own each stock in the fund's portfolio. You own a share of the fund itself, and the value of that share rises or falls with the value of the assets the fund holds.
What is NAV, a fund's net asset value?
The value of one fund certificate is measured by its NAV (net asset value): the fund's total assets minus its liabilities, divided by the number of fund certificates in circulation.
Here is a hypothetical example. A fund has net assets of VND 100 billion and 8 million fund certificates in circulation. The NAV per fund certificate is therefore VND 12,500. If the prices of the assets in the fund rise, the NAV rises with them; if they fall, the NAV falls too.
Which types of funds will you come across in Vietnam?
Grouped by how a fund lets investors take their money out, beginners in Vietnam usually come across three types:
Open-ended funds: the fund must buy back fund certificates when an investor asks. You buy and sell directly with the fund, through the fund management company or an authorized distribution agent. This is similar to what many other markets call a mutual fund.
ETFs: exchange-traded funds, whose fund certificates are listed on the stock exchange and usually track an index. You buy and sell ETFs through a securities account, just like shares.
Closed-end funds: the fund does not buy back fund certificates on request. To get your money out, you have to sell your certificates to another investor on the exchange. Beginners are currently less likely to come across this type.
Within each type there are many different strategies, such as equity funds, bond funds or balanced funds. Two funds that are both open-ended can still carry very different levels of risk.
How do open-ended funds differ from ETFs?
Both open-ended funds and ETFs pool money from many people and invest it in a portfolio. The biggest differences are in how you buy and sell, and how the price is set:
Criterion | Open-ended fund | ETF |
|---|---|---|
Where to buy | The fund management company or an authorized distribution agent, such as a bank, securities company or investing app | A securities account, by placing an order on the exchange |
Trading price | The NAV of the dealing period, known exactly only after you place your order | The market price during the trading session, which can be above or below NAV |
When you can trade | On the dealing periods the fund announces; orders must be placed before the order cut-off time | During the exchange's trading hours |
Common fees | Subscription fee, redemption fee, and a management fee already reflected in NAV | Brokerage fees charged by the securities company, and a management fee already reflected in NAV |
Minimum amount | Set by each fund; many funds let you start with a small amount | Depends on the fund certificate price and the exchange's rules on order size |
Getting your money back | Sell back to the fund on a dealing period and receive the money after a few working days | Sell on the exchange when there is a buyer, so it depends on the ETF's liquidity |
This way of pricing is not unique to Vietnam. The US Securities and Exchange Commission (SEC) also explains that mutual funds are bought and sold at NAV, while individual investors buy and sell ETF shares at market prices relative to NAV, which may be higher or lower than NAV.
How do you buy open-ended fund certificates?
The exact process depends on the fund, but it usually involves these steps:
Choose where to buy: the fund management company or one of that fund's distribution agents. Then open an account for trading fund certificates.
Read the fund's prospectus and charter to learn what the fund invests in, what fees it charges, when it trades and how long it takes to receive your money when you sell.
Place a buy order and transfer the money before the order cut-off time for that dealing period.
Receive fund certificates at the NAV for that dealing period. The number of certificates you receive equals the amount you invest, after fees, divided by the NAV.
Because many open-ended funds let you buy with a small amount and through a monthly plan, they are often used for periodic investing, also known as dollar-cost averaging (DCA). With an ETF, you place an order through a securities company, just as you would to buy shares. The lesson on how Vietnamese ETFs differ from US ETFs gives some examples of domestic ETFs.
What should you check before choosing a fund?
What kind of assets does the fund invest in, and does that level of price movement suit your goals and investment time horizon?
What is the total cost of buying, holding and selling? Some funds reduce the redemption fee if you hold for longer.
How often does the fund trade, and how long does it take to receive your money when you sell?
Is the fund run by a licensed fund management company, and does it have a supervisory bank?
Remember that past performance is for reference only and does not guarantee future results.
A fund certificate is not a bank deposit. The value of your investment can fall, and you may get back less than you put in.
Next step
Fund certificates let you own many assets at once instead of picking individual stocks. But holding many assets does not automatically spread your risk well: what matters is how different those assets are from one another. So how do you tell whether a portfolio is genuinely diversified? The next lesson explains what diversification is and why it can help reduce risk.
Continue the main path: What is diversification?
Back to the core lesson: What is an ETF?
This content is for personal finance education only and does not constitute personalized investment advice. Consider your own goals, time horizon, ability to bear losses, and financial circumstances before investing.