Trust fund, also known as investment fund, is a collective investment model of "benefit sharing and risk sharing". It refers to a collective investment trust system in which the unequal funds of most investors who are uncertain in society are pooled through contracts or companies, and fund bonds are issued to form trust assets of a certain scale, which are handed over to professional investment institutions for diversified investment according to the principle of asset portfolio, and the profits obtained are shared by investors in proportion to their capital contribution and bear corresponding risks.

The so-called trust refers to the system that the property owner gives the property to the trustee for possession, use and disposal based on the trust, but agrees to give the proceeds to a specific person or to achieve a specific purpose. Trust can be understood as that the trustor has given the trust property to the trustee. Although the trustee has obtained the ownership, he has no right to control others for his own benefit or according to his own will, and only controls the obligations of others according to the wishes of the principal for the benefit of the principal or other persons designated by the principal.

Broadly speaking, funds are the collective name of institutional investors, including trust investment funds, unit trust funds, provident funds, insurance funds, retirement funds and funds of various foundations. Funds in the existing securities market, including closed-end funds and open-end funds, have the characteristics of income function and value-added potential.

From the accounting point of view, funds refer to funds with specific purposes and uses. Because the investors of government agencies and institutions do not require investment returns and investment recovery, but require funds to be used for designated purposes in accordance with the law or the wishes of the investors, funds are formed.

How does the trust fund work?

The operation mode of trust fund funds is mainly loans, with less equity investment and a shrinking trend. Even in the only equity investment projects, trust companies basically do not participate in the specific operation and management of the target company, and take various control measures, such as sending directors, appointing financial directors, and amending the company's articles of association. , in order to prevent financial risks.

The end of the equity investment project mainly depends on the third party to buy back the equity, and the dividend and liquidation of the target company have basically never happened, and it is impossible to wait until the IPO. This kind of equity repurchase investment belongs to debt financing in disguised form. Equity investment is rare because it has fatal defects, that is, in the short term (1-2 years), there is great uncertainty in the future third-party repurchase, and the exit channel is not smooth and the risk is high, so trust companies are no longer willing to adopt it.

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