In the same period, 436 new products were granted authorisation, predominantly fixed-income and guaranteed products, as the local fund industry adapted to a changing investment climate and more cautious investor appetites.

Fund managers have previously said that investors would continue to focus on guaranteed funds this year, as such funds assured them of the capital and some profits over a period of time.

Three hedge funds for retail investors also made their debuts on the Hong Kong market.

'The SFC doesn't have a policy to force the closure or merger of investment funds due to concerns over fund size. However, in order to protect the general interest of investors, we do have the duty to remind fund managers to review the cost implications should the size of the fund consistently be maintained at a low level, say, US$5 million,' an SFC spokesman said.

'Fund managers will also be advised to consider appropriate measures to deal with the high-cost structure in the best interest of the unit holders,' he said.

Deauthorisations were up 59 per cent last year, from 222 in 2001. Only 167 funds were deauthorised in 2000, a drop of 52.7 per cent on the year before.

The number of new funds authorised last year was up 29 per cent on 2001 (337 new products) after a jump of 364 per cent (803 funds) in 2000, mostly due to the introduction of the Mandatory Provident Fund.

Excluding the one-off surge in 2000, the SFC said the compound annual growth rate of fund authorisation since 1999 was 34.4 per cent, against a negligible zero per cent for deauthorisation.

According to the SFC code, fund managers must give investors three months notice of their intention to close a fund and the reasons for it. They must also offer alternative investment choices or proposals.

A survey conducted by the Hong Kong Investment Funds Association last year showed only 6 per cent of fund investors based their investment decisions on new fund launches.

'Based on our survey, it seems that fund investors are not chasing new products, new fund launches do not seem to be the most important factor [behind investment decisions],' said Sally Wong, executive director of the Hong Kong Investment Funds Association.

Far more important was word-of-mouth, with about 29 per cent of respondents saying recommendations by either friends and relatives or distributors were important factors in their decisions about investment services or products.

Clara Law, associate director at Schroders Investment Management, said funds with less than US$10 million invested were at risk of becoming too small to manage from a cost perspective.

'A lot of people queried us when we closed the Schroders gold fund [in August]. They said gold this year was performing pretty well and [asked us] why we closed the fund. But if you look at the history, gold is a more volatile, cyclical asset class. We can't just keep one fund because money has been going in for the past six months. That money could easily go out in the next three months,' she said.

'We must strike a balance between offering as many trendy, popular products to the clients as possible . . . and looking at the [long-term] benefits to investors,' she said.

Schroders deauthorised 13 funds last year as part of a fund reorganisation project. International clients are now offered funds domiciled only in Luxembourg to allow for same-day dealing within the family of funds. Three funds were taken off the market due to insufficient size and 10 new funds launched, most of them guaranteed products.

Allianz Dresdner Asset Management closed its Indian and Australian funds due to the poor market situation but added four Pimco bond funds.