TOMORROW'S launch in the mainland of two closed-end mutual funds - the first to gain official sanction since 1993 - is expected to attract strong buying interest among retail investors. Attracted by the fanfare surrounding the new funds and, more importantly, by Beijing's backing for them, individual investors are expected to snap up shares in the Kaiyuan and Jintai funds. Corporate and governmental entities are barred. 'I will subscribe,' said Yulanda Liu Yulan, an employee of a foreign-funded company. Ms Liu, like many mainland punters, has all of her 20,000 yuan (about HK$18,614) in savings invested in the stock market. Ms Liu, who holds a university degree, is convinced that the historic approval the funds received earlier this month from the China Securities Regulatory Commission (CSRC) will boost their investment performance. 'With government backing, I expect the funds will perform well in the beginning,' she said. But the magical effect of the CSRC stamp of approval will need to be potent as Ms Liu has little confidence in the fund-management experience of sponsoring brokerages, who must pioneer the mainland's new investment-fund law. China Southern Securities is sponsoring the Shenzhen-listed Kaiyuan Fund, and China Guotai Securities is sponsoring the Jintai Fund, which will trade in Shanghai. Each fund will be capitalised at two billion yuan. Ms Liu's scepticism is more a reflection of the history of mutual funds in the mainland than a comment on the abilities of these two companies, whose funds enter a crowded market in which nearly 80 other closed-end funds operate. Most of these funds were set up amid the euphoria surrounding Deng Xiaoping's visit to southern China in 1992. In May 1993, concerns about the quality of management of the quickly sprouting funds, and about widely varying regulatory standards, prompted the State Council to rule all new funds would have to be approved by the People's Bank of China. Creation of new funds almost ceased. But existing funds continued to operate, often making highly speculative investments, including taking on large property holdings. With the new law, the government hopes to change this pattern. No less than 20 per cent of the new funds' assets must be invested in state bonds, and the remaining 80 per cent must be in stocks or bonds. The new funds are being introduced in a bid to boost market stability and provide liquidity for state-owned companies' upcoming stock offerings. Investment funds are critical if the mainland is to put to work its huge pool of individual bank deposits, which total nearly five trillion yuan. Limited investment options and an annual savings rate of 35 per cent mean the mainland is bursting with assets that could be invested. Fund managers predict China will eventually become the world's third-largest mutual-fund market, after the United States and India. 'With no other form of professional or collective investment on the retail level, mutual funds will spark interest among retail investors,' said Stewart Aldcroft, the marketing and sales director at Templeton Franklin Investment Services (Asia). To that end, investors in the new funds are to receive what by international standards is a generous payout - at least 90 per cent of each fund's net profit must be distributed once a year. About 30 million people in the mainland invest in stocks, and daily stock turnover amounts to 60 billion yuan. Mr Aldcroft said he hoped the introduction of professionally managed mutual funds would help reduce volatility in mainland stock markets. But Ms Liu, like many of the investors lined up and ready for tomorrow's launch, is not taking the kind of long-term view Mr Aldcroft hopes funds will foster. 'If I am lucky enough to be allotted shares in the fund and it rises more than 30 per cent on its debut, I will sell immediately,' she said. 'I think others will do the same.' Ms Liu said a 30 per cent jump was about average for new stock issues on the mainland. If the fund rose less than 30 per cent immediately after its launch, she would be willing to hold its shares for a year or so - after all, she explained, government backing meant performance 'must' be good during the first year. This short-term, speculative attitude is not what Mr Aldcroft wants to hear. 'It is absolutely the wrong way of viewing the issue,' he said. 'There is a great danger in allowing closed-end funds to be traded like initial public offerings.' Redemption restrictions might be put in place, he said. In Thailand, for example, shares can only be redeemed after six months.