In recent years, against the backdrop of stricter trust industry regulation and a faster return to the essence, more and more trust companies have begun to focus on the transformation of net value products. So, what exactly is net value? What causes the fluctuation of product net value? Does net value fluctuation mean a change in the actual returns of the product?

I. Unveiling the "Mysterious Veil" of Trust Net Value

To promote the return to the essence of asset management institutions and break the rigid payment of asset management products, on April 27, 2018, the People's Bank of China, in conjunction with three departments, issued the "Guiding Opinions on Regulating the Asset Management Business of Financial Institutions" (hereinafter referred to as the "Asset Management New Regulations"), which clearly proposed that asset management products should implement net value management, officially opening the curtain on the net value transformation of asset management products. The transition period of the "Asset Management New Regulations" officially ended at the end of 2021, marking the official entry of various asset management products, including capital trusts, into the "net value era" from 2022.

The net value of trust products, in layman's terms, is that each trust product is confirmed based on the product's net value, and the net value of each product will fluctuate with market changes, and the final returns to investors are also calculated based on the net value of the product at maturity.

II. Net Value Management is Beneficial to Creating Greater Value for Investors

Firstly, net value management can help investors make the right investment decisions in a timely manner.

After the operation of net value, the trustee institution needs to regularly disclose the net value changes of the product and the operation report of the product, making the income and loss situation of the product more transparent. This helps investors to understand the latest net value of the product in real time, as well as the situation of net value changes, thereby helping investors to make the right investment decisions.

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Secondly, net value management can restrain the trustee institution and protect the rights and interests of investors.During the net value process, the involvement of custodian institutions and external audit institutions not only prevents trust companies from conducting interest transfers through related party transactions and other means, but also helps to truly reflect the quality of trust assets, avoiding the situation where valuation fraud occurs during the existence period and cannot be redeemed upon maturity, thereby protecting the rights and interests of investors.

Thirdly, net value management can motivate the trustee to enhance the level of asset management and create more returns for investors. Under the net value management model, the remuneration of the trustee is linked to the net value performance. By binding interests, the trustee is motivated to strengthen the management level, thereby creating greater value for investors.

III. Product Net Value Fluctuation ≠ Actual Loss

The reason for the fluctuation in the net value of the product is due to the change in the valuation method of the trust product, from the original "amortized cost method" to the "market value method". The amortized cost method, when calculating the net value of the product, will spread the maturity income and discount/premium fluctuations of the underlying assets to each day for calculation, making the daily net value appear fixed and unchanged. Taking bond assets as an example, assume that a product purchased a bond with a face value of 100 yuan at 95 yuan, and the market value of the bond may fluctuate due to market supply and demand during the holding period. However, as long as it is held to maturity, a fixed income of 5 yuan will be obtained. If the amortized cost method is used, this 5 yuan of income will be evenly spread over the previous days, so the product's daily net value will not fluctuate. Similarly, if the market value method is used, the daily rise and fall of the bond will be directly reflected in the product's net value performance, and the corresponding net value curve will also fluctuate up and down, but a 5 yuan income can still be obtained upon maturity.

Therefore, for trust products mainly invested in fixed income assets such as bonds, short-term fluctuations in product net value caused by market conditions will not have too much impact on the actual income at the time of product maturity, and investors can hold with confidence.

▲ Example of product net value changes under different valuation methods

In summary, the net value of trust products valued using the market value method, the short-term fluctuations in net value do not represent the actual gains and losses at the time of product maturity. The performance of trust products truly depends on the allocation strategy of the underlying assets of the product and the professional asset management capabilities of the trust company.

Faced with short-term market fluctuations, investors need to choose professional trust companies with strong investment management capabilities on the one hand; on the other hand, they need to clarify their investment purposes and choose products that suit their own risk preferences and investment returns. For example, the "Jiaozi" series fixed income trust products of China Railway Trust not only select AA and above bond issuers with high safety levels; the invested assets are all high-liquidity bond assets, which can dynamically adjust investment strategies and target combinations according to economic and financial market conditions, with flexible terms and low investment risks, and can bring "stable happiness" to investors pursuing long-term stable returns.

The views in this article represent only the original author and are for reference only, not as investment advice. Investment has risks, please choose carefully.