In accordance with the EFAMA (European Fund and Asset Management Association) standards, open-end investment funds are divided in:
Monetary funds:
1. Short treasury funds with an average investment maturity under 60 days;
2. Standard treasury funds with a sub-unitary Modified Duration indicator;
MODIFIED DURATION = for a fixed revenue instrument portfolio, it is the approximate percentage change of the portfolio value due to the 1% change of the returns of all fixed return instruments, part of that portfolio’s structure. For example, if a fund has a Modified duration indicator value amounting to 1, a market return increase by 0.5% for all fund instruments will determine a diminishing of the fund unit value by approximately 0.5%.
Between the market interest rates and the fixed return instrument price, there is a reverse relation, meaning that an increase of the interest rates leads to the diminishing of their value. Interest rate changes are immediately reflected in the fund unit value only if the portfolio securities are assessed through the market marking method and if they are liquid. If the securities in the portfolio are assessed by using the depreciation method, as applicable to most monetary and bond funds in Romania, the interest rate change effects over the fund unit value are only reflected on the selling of the bonds, when the difference shall be registered between the price used in the assessment and the market price.
The international standard that is also adopted by EFAMA for the differentiation of monetary funds from bond funds is this indicator, respectively the monetary funds have a modified duration under 1, while bond funds are an improper indicator.
Bond funds
Bond funds shall invest at least 50% of the assets in fixed return financial instruments, and, as a novelty, they cannot be invested in stocks.
Mixed funds were structured in:
1. Defensive stock funds of maximum 35%
2. Stock balanced funds of 35%-65%
3. Stock dynamic funds of over 65%
4. Stock flexible funds of 0-100%
Stock funds
Investments in the stock securities of stock funds shall be minimum 85% of the assets.