Mutual Funds

Prudent investment decisions require time, dedication, and expertise. The investment process can be especially time-consuming, not to mention confusing, with an abundance of options. The steps and tasks can add up to an enormous burden: Ascertaining the type of investment that best meets your requirements; following daily economic developments; switching instruments when required; following up the asset terms of your portfolio; and calculating the periods for using the first option rights of securities. Mutual funds managed by professionals release investors of the time burden associated with such tedious tasks. They also shift the burden of appraisal from investors to investment experts.

Mutual funds bear risks of varying degrees based on their types. Generally, potentially high returns mean potentially high risks. Therefore, the choice of mutual fund type (A or B) and kind (equity, bonds and bills, liquid, variable, etc.) must match risk and return preferences.

The past performance of a mutual fund is one indicator of its profitability. Data on daily, weekly, monthly, and yearly returns should be examined and compared with returns on alternative investments. Such data are widely available, and are even published in newspapers and magazines.

However, the past performance of a mutual fund cannot be taken as an infallible indicator of its future performance. Daily price and efficiency fluctuations must not influence the choice of mutual funds. Particularly mutual funds heavily invested in equities should be regarded as medium- and long-term instruments of investment.

Detailed information on mutual funds is available at HSBC Branches and through HSBC Telephone Banking (444-0-111).

In accordance with the Mutual Funds Decree of the Capital Markets Board, the founder of the fund appoints a Fund Board including at least one auditor and at least three people to carry out fund-related transactions on behalf of the founder.

A Fund Service Department – consisting of a Fund Accountant and a sufficient number of staff members – operates under the supervision of the Fund Manager who is responsible for ensuring that fund-related transactions are carried out in a sound manner.

When choosing a mutual fund, the following points should be taken into account

• Fund revenues.
• Founder of the Fund.
• Type and kind of funds managed by the founder.
• Most recent portfolio composition of the Fund.
• Portfolio manager managing the Fund portfolio.
• Success of founder according to types of fund managed in the past.
• Success of founder compared to other funds of the same type.
• Places where Fund Participation Certificates can be bought and sold.
• Times when Fund Participation Certificates can be bought and sold.
• Requirement of an advance notice for buying and selling Fund Participation Certificates.

Type-A funds must have at least 25% of their portfolio value dedicated to equities. As such, they can be positively or negatively affected by fluctuations in the stockmarket. Type-B funds are not restricted with respect to the asset composition of their portfolio. In this sense, Type-A funds can be said to be riskier than Type-B funds. Revenue expectations are directly proportional with the risks undertaken.

A Participation Certificate is a valuable paper bearing the rights of the certificate holder before the founder and the custody company. It constitutes legal documentation of shares held in the fund.

Investors are entitled to sell Participation Certificates and collect the revenues whenever they wish. However, provided that it is specified in the fund regulations, some fund founders may apply a notice period of 1 or 2 business days for returns in order to make cash arrangements. In this case, investors are obligated to notify the founder of their transaction requests as many days in advance as specified.

Buying Funds

If you register your purchase request before 13:00 on a business day, fund subscription takes effect on the next business day with the evening price of the notice date. If you give your notice between 13:00 and 24:00, fund subscription becomes effective two business days later with the evening price of the business day immediately following the notice date. This holds for both Type-A and Type-B funds.

During the notice period, an amount equivalent to the value of the fund at the time of notice is reserved and retained in the HSBC Liquid Fund (HSBCL – HSBC Bank Type-B Liquid Fund). The number of shares to be transferred to your account is calculated by adding accrued interest to the amount you deposit when giving the notice.

The HSBC Liquid Fund is not subject to a notice period. Transactions are carried out instantly and at your convenience (7 days & 24 hours). Price changes take effect at 18:00 on business days.

Selling Funds

For Type-A funds, if you issue a sales order before 13:00 on a business day, you effectively divest your holdings two business days later. If you issue a sales order between 13:00 and 24:00, the sale takes effect three business days later with the evening price of the business day immediately following the notice date.

For Type-B funds, if you issue a sales order before 13:00 on a business day, the sale becomes effective on the next business day with the evening price of the notice date. If you issue a sales order between 13:00 and 24:00, the sale takes effect two business days later with the evening price of the business day immediately following the notice date.

The HSBC Liquid Fund is not subject to a notice period. Transactions are carried out instantly and at your convenience (7 days & 24 hours). Price changes take effect at 24:00 on business days.

As buying prices are not definite in the future pricing method, the prices of Participation Certificates are extrapolated by adding 5% margin for A Type Funds and 2% margin for B Type Funds to the most recent selling price. At the time of the transaction, any excess of the margin price over the actual price is transferred to the investor's account. This method applies to both Type-A and Type-B funds.

The total fund value divided by the number of shares in circulation gives the unit price for the Participation Certificate.

However, as portfolio value is based on daily average prices in the stockmarket, the prices of Participation Certificates may not show a one-to-one correspondence with closing prices.

For example, a comprehensive rally of 10% in the last few minutes of the stock exchange session would not produce a comparable increase in the unit price of a Type-A fund consisting entirely of equities. Likewise, a late drop would not significantly influence certificate prices.

All assets in the mutual fund portfolio are appraised at the end of every business day, with the appraisal based on average prices of the markets (index fund closing prices) where the assets are traded. The total fund value is determined through adjustments in line with individual gains and losses on assets constituting the entire portfolio.

Mutual fund returns consist of interest revenues on fixed-income securities (Treasury Bills and Government Bonds), dividend income from equity shares, and profits from trading activities. An increase in the market value of assets comprising the fund would also lead to an increase in the portfolio value.

The prices of Participation Certificates can decrease in response to a drop in the prices of equity shares or fixed-income instruments comprising the portfolio or in response to losses incurred in trading activity. The unit price may rise or fall on any given day. Monthly and quarterly data provide a better foundation for performance appraisal.

• HSBCL (HSBC Bank Type-B Liquid Fund) and HSBCD (HSBC Bank Type-A Variable Fund) can be traded in multiples of 1 share.
• HYMAD ( HSBC A Type Equity Fund ) can be traded in multiples of 10 shares.
• HSBC Yatırım B Type Variable Fund can be traded in multiples of 25 shares.
• HSBCT ( HSBC Bank B Type Bond Fund) , HYMBT (HSBC Yatırım B Type Bond Fund) and HYEND (HSBC Yatırım A Type ISE National 30 Index Fund ) can be traded in multiples of 100 shares.

You can carry out all your HSBC mutual fund transactions during business hours at our branches and whenever you wish (7 days & 24 hours) through our direct banking channels (HSBC ATMs, HSBC Telephone Banking, and HSBC Internet Banking).

You can carry out all your HSBC mutual fund transactions during business hours at our branches and whenever you wish (7 days & 24 hours) through our direct banking channels (HSBC ATMs, HSBC Telephone Banking, and HSBC Internet Banking).

There are no transaction limits until 13:45 on business days at HSBC Branches, HSBC ATMs, HSBC Telephone Banking (444-0-111), and HSBC Internet Banking (www.hsbc.com.tr).

However, HSBCL (HSBC Bank Type-B Liquid Fund) transactions on business days are limited to a TL 5.000,00 ceiling for purchases between 13:46-18:00 and sales between 13:46-24:00. The ceiling also applies to HSBCL sales during weekends and holidays, but not to HSBCL purchases.

All revenues generated through mutual funds are subject to withholding tax of 10%, on a transaction basis.

The equity shares and fixed-income instruments comprising the portfolio of a fund are kept at Takasbank, where each fund has a separate account in custody. Foreign securities are held by international custody companies specified in the relevant regulations.

The founder of the mutual fund must assign at least one auditor with specific qualifications for every fund. Furthermore, mutual funds are inspected by independent external auditing companies, in accordance with a contract, on a semiannual and annual basis. It is obligatory for the annual audit report to be submitted to the Capital Markets Board. The Board is also entitled to audit mutual funds at all times.

You can visit any HSBC Branch or call HSBC Telephone Banking (444-0-111) for all your questions and information needs.