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. Last Updated: 07/27/2016

Mutual Fund Decree Receives Cautious Financial Welcome

Investment firms Monday gave a cautious welcome to a presidential decree ordering the creation of Russia's first mutual funds -- a step that would allow ordinary Russians to participate in the purchase of state assets for the first time since voucher privatization ended last year.

The decree, issued by President Boris Yeltsin last Wednesday, calls on the Federal Securities Commission to begin establishing and regulating within two weeks Western-style mutual funds that would invest in Russian securities, tapping the estimated $20 billion Russians are believed to keep at home.

"People have been longing for mutual funds," said Vadim Mukhin, head of the investment section of the First Voucher Bank. "Currently, they don't have a financial instrument other than their bank accounts. But soon people will understand that mutual funds are more profitable."

While Russia's capital markets have developed rapidly over the past 18 months, they have remained largely out of reach for ordinary Russians, with the minimum size of deals set at tens of thousands of dollars.

Alexander Tsapin, vice-president of Pioneer Investments, said that while the public certainly has enough cash to place in mutual funds, the problem would be convincing them that the new funds were a better risk than the myriad of unregulated investment schemes -- the most notorious of which was run by MMM -- in which many Russians have lost their savings.

"People are afraid of the MMM-type scam schemes companies," he said. "To attract people, the government has to introduce required licensing and a special tax status for the mutual funds."

The Federal Securities Commission has been given two months to establish a legal basis for the funds.

Tsapin said that if the funds themselves are fully taxed, they will not be attractive investments. If, however, tax is paid by investors themselves, as is common in the West, then the funds will become very popular, he said.