Beijing may expand its mutual fund industry experiment by allowing the first batch of domestic fund-management groups to launch direct investment funds by the end of this year. The managers could launch open-ended mutual funds in the first quarter of next year, sources said. The first batch of domestic fund-management groups have so far been restricted to close-ended securities investment funds. The funds target mainland investors and put money into A shares. 'Indications are that each of the first five local groups may well be allowed to issue a second mutual fund - an industry fund - before the end of this year and a third one - either a close-ended or an open-ended - in the first quarter of next year,' one source said. The apparently faster progress came after the successful launches of securities investment funds by groups led by brokerages including China Securities, China Guotai Securities and China Southern Securities since March. Also to be included in the first batch are Citic Securities and Shanghai International Trust & Investment Corp. The source said Beijing wanted to see the second round of mutual fund launches to target a specific sector, such as telecommunications or power. He said direct investment funds would help nurture institutional support for the sector. These funds were more attractive to institutional investors than retail investors. The first five local groups might also be given the chance to attempt a new type of mutual fund - an open-ended fund - which foreign fund managers have long been contemplating. It is understood Sino-foreign mutual fund regulations might be published in the fourth quarter of this year, with the first operator up and running in the second quarter of next year. The partnership between American International Group (AIG) and China International Trust and Investment Corp (Citic) has since 1996 been cited as the front-runner to operate the first Sino-foreign mutual fund. Despite reports that suggested the Sino-foreign mutual fund would be allowed to invest its assets in both A and B shares and domestic industries, the source doubted this was likely, saying Beijing had always wanted to make a clear distinction between investments in A and B shares.