Co-founder of MBMG Group
Act quickly to get maximum
benefit from RMFs of LTFs
If you’re earning a Thai Baht salary, Retirement Mutual Funds (RMFs) and
Long-Term Equity Funds (LTFs) can represent an opportunity for sizeable
tax savings – but you may have to act quickly.
What are they?
The idea behind a mutual fund is that numerous people
contributing to the pot is that it is a lot easier to invest than buying
and selling individual stocks and bonds on your own.
A retirement mutual fund (RMF) is a pool of money put together by
several investors with the idea of providing a long-term savings plan
for when they retire. Investors are obliged to stay in the fund until
they are 55 years old, as they are designed to be a retirement planning
Long-term equity funds (LTFs) are similar. The difference is that they
offer more flexibility, as they have no age restriction. That said, they
do have a holding period of five calendar years before any redemption
can be made. The calendar part is crucial. It means you can actually be
in the fund for as little as 3 years and 2 days, as the duration must
occupy five different consecutive calendar years. However, this will
change: as of 1st January 2016 the minimum holding period before
redemption will become seven calendar years1 - thus a minimum of five
years and 2 days.
To encourage investment into Thai markets, the Thai government sought to
offer tax incentives to invest into Retirement Mutual Funds and
Long-Term Equity Funds. In a nutshell, the amount that you invest in
RMFs and LTFs can be deducted from your annual taxable income, reducing
your income tax.
Euronext last 10 years
Chart 2 - Sources: Investing.com & Euronext
Dow Jones Industrial Average index last 10 years
Chart 3 - Sources: Investing.com
LTFs and RMFs invest into Thai equities markets, which have performed
equally as well as the world’s major stock markets in recent times (see
charts 2 & 3). The main stock market, the SET, has consistently been a
reliable performer. It rebounded strongly from the impact of the Global
Financial Crisis, the terrible flooding in 2011 and the political crisis
in late 2013 and early 2014 (see chart 1).
However, the return on investment is not only the performance
of the investment itself but also on the tax savings for which the fund
To qualify for tax benefits through and RMF, a minimum yearly investment
is required of 3% of your annual income or THB 5,000 (whichever is
LTFs have a maximum yearly investment ceiling of 15% of your annual
income, not exceeding THB 500,000. The same limits apply for an RMF,
provident fund and state pension collectively. The example in chart 4 is
illustrated on an annual net income of THB 5 million per annum. If, from
that income, THB 1 million per annum is invested in an LTF and RMF, the
tax saving of THB 350,000.
Thus, by investing THB 1 million split between an LTF and an RMF, you
can reduce your assessable income from THB 5m to THB 4m. This is a
saving of 35% on the THB 1 million of income at the top of the tax
spectrum. Furthermore, any gains that the LTF/RMF make are not subject
to Capital Gains Tax as long as no terms and or conditions are broken.
Time running out
Whilst these instruments could be an interesting opportunity
to both invest in your future and receive tax benefits, their future is
in the balance.
Chart 4 - Source: MBMG Group
Although tax-reform plans (announced in mid-2014 and due to be
implemented in 2016) initially looked like putting an end to tax breaks
for LTFs,2 the Ministry of Finance has just announced a three-year
extension to the scheme. A government official stated that the Ministry
“acknowledged the severely negative effect on the stock market that
might occur if it let the privileges expire in 2016, as a huge portion
of investors are invested in LTFs to tap tax benefits.”3
So if you want to invest an LTF with a shorter lock-in period, you’ll
have to invest before the current system expires at the end of the year.
It’s important to note that, like all other investment products, RMFs
and LTFs do not suit everyone. After all, when we invest we all have
different objectives, priorities and levels of risk we’re prepared to
take. There are many deductible allowances in addition to RMFs and LTFs,
so it’s worth exploring the possibilities. That’s why it’s important to
ask an independent regulated advisor before making a decision.
Can AEC deliver for investors?
Myanmar: Total Merchandise Trade
Source: Asian Development Bank
The Asean Economic Community – a sort of common market for Southeast Asia
– is set to become some kind of reality at the end of the year and it’s
already possible – in theory at least – to invest across borders. However,
there’s no proof as yet that all this is built to last.
A few weeks back, Myanmar’s ministry of commerce reported that trade with
its four neighbouring countries had reached almost USD 2.5 billion. To put
that into context, it’s similar to the value in services the US exports to
That may not be anywhere near the same scale as China-US trade but,
considering where Myanmar has come from, it’s quite a step. Overall trade
has increased massively since 1998 (see chart) and in that time so has GDP,
which has gone up by a huge 348% (in Burmese Kyat terms or 747% in US Dollar
That bodes well for the future of the AEC, which is due to open for business
at the end of this year. Myanmar has been consistently in the bottom two
Asean member countries since Cambodia joined the group in 1999, in terms of
GDP per capita (in current USD as well as based on PPP in International
Dollars).3 As one of the AEC’s stated goals is to create a region of
‘equitable economic development’4 the fact that one of the region’s least
developed economies is quickly catching up with the likes of Vietnam, the
Philippines and Indonesia, is welcome news.
The AEC’s administrators have certainly followed the example of the European
Union’s Single Market, in establishing fundamental freedoms on which the new
common market will be based,5 which include: the free flow of goods,
services and investment, as well as the freer flow of capital.
What does this mean for investors?
Although these objectives may sound purely theoretical, they may
in fact become an everyday reality for Southeast Asian investors.
In August of last year, Asean announced that the offering of cross-border
collective schemes between Thailand, Singapore and Malaysia was now
permitted, under its Asean CIS Framework.6 The rules of the game are that
schemes must receive their home regulator’s approval first before being able
to be offered within one of the other two CIS countries. By September 2015,
eleven funds had been granted such home approval; although none of them to
my knowledge have yet received the green light from either of the two host
CIS is following in the footsteps of the European UCITS framework, which
first appeared in 1985 and allows investment schemes authorised in one EU
country to be sold or promoted in another.7 Whatever UCITS’ strengths and
weaknesses, with around USD 8.8 trillion of assets under management8 and
accounting for around 75% of all collective investments by small investors
in Europe, it can hardly be described as unused.
UCITS allows a fund management firm based in, say, northern Sweden sell its
authorised financial products to someone in southern Portugal. The reality,
however, has been a concentration of management firms in the jurisdiction
which offers the best conditions regarding tax treatment, accessibility,
regulation and investor protection. In Europe’s case, this is Luxembourg.9
It’s now up to the three Asean jurisdictions who have already rolled out the
CIS framework to take advantage of their head start and provide the best
conditions for managers and investors to do business.
Where UCITS differs significantly from CIS is that in the former only the
home regulator’s authorisation is required. This exposes a gap in the system
– and in the whole AEC plan for that matter. Whilst the different UCITS laws
have passed through legislative processes, such as consultation, hearings in
the European Parliament and the Council of Ministers, such mechanisms do not
exist in Asean. For the CIS framework, the rules were drafted and those
national regulators who agreed signed up. That’s why there are only three of
the nine member states where a CIS is possible.
Not only that, once the CIS becomes used, there is no-one to regulate the
regulators? If one national regulator decides to block CIS funds for no
particular reason other than national interest, unlike in the EU, there is
no supranational body with the legal power to stop it.
If regulators are really serious about an Asean environment where investors
can buy properly regulated financial products with the peace of mind which
meaningful protection can give, there has to be a supranational regulator
and dispute settlements system in place.
Of course when we look at that, we face the bigger obstacle: how a group of
nine states, including kingdoms, people’s republics and a sultanate to agree
on the roles and limits of institutions. Such a process has taken the EU
fifty years to get where it is today and its members have far more in common
than the Asean states currently do.
The AEC as a whole, and the CIS in particular, are based on commendable
objectives which may not bring about greater prosperity in Southeast Asia
but could well enable it. I truly hope the project works, but I wouldn’t
hold my breath.
2 IMF World Economic Outlook, October 2015
5 Asean Economic Community Blueprint, Asean 2008
6 http://www.theacmf.org/ACMF/webcontent.php? content_id=00067
Forget perceived wisdom, there are few
good buying opportunities out there
The recent dip in Eurozone stock markets is a relief
from recent inflated prices. Yet it doesn’t necessarily mean that it’s the
right time to buy.
Back in 2002, author Michael Lewis shadowed the management of baseball team
the Oakland Athletics. In Moneyball: the art of winning an unfair game Lewis
explains how, finding themselves unable to compete with the richer clubs,
its management had thrown out the mix of statistics and gut feeling
conventionally used for recruitment and started from scratch.
Chart 1 - Source: IMF.
The Athletics signed players overlooked by other teams
because their faces didn’t fit, their bodies were the wrong shape or they
didn’t measure up to traditional statistics. Few seemed to be questioning
what chiselled faces, sculpted bodies and favourable century-old
calculations actually meant in reality. The Athletics did, though, and their
new system of analytics showed important qualities their rivals couldn’t
see. Success was immediate and unprecedented – nowadays even the rich clubs
follow their methods.
Chart 2 - Source: IMF.
It’s no great surprise that Lewis has also authored books
on finance, including last year’s excellent book about high-frequency
trading, Flashboys. After all, just as in sport, there are perceived
conventional wisdoms in the world of finance, which no longer necessarily
One of those perceived wisdoms is that if there is a significant drop in
stock prices, it’s an ideal opportunity to buy. This assumption can be
correct in the short term. For example the main German stock exchange index,
the DAX, was at 11,492 points on 22nd June, down to 11,058 on 29th June and
back up to 11,673 on 13th July.1 So if an investor had taken the opportunity
to buy on 29th June and sold again on 13th July, he or she would have made a
nice little 5.5% return inside just over a fortnight.
Of course, there are two main complications with this: how to get the timing
right to buy; and how to know if the price will go back up in the near
future to sell. These are two good reasons why I don’t like short-term
investments. The latter of these is particularly relevant in Europe today.
Stocks in Europe were experiencing inflated prices during the first half of
this year, while key indicators showed – and continue to show – that the
economy was faltering.
Not surprisingly, Euro Area stock prices are no longer at the level they
were back in April. We saw a significant drop in September, followed by what
could rather optimistically be called a ‘mild recovery’ since then (see
Chart 3 Source: St. Louis
It’s difficult to say with 100% certainty in which
direction those prices will head next. Yet, given the above economic
indicators, it wouldn’t come as a great surprise if they were to remain as
low as they have been for almost three months.
That’s why I wouldn’t call Eurozone markets a place where investors could
make any medium to long-term gain. As long as the ECB insists on its
cocktail of public sector austerity measures, quantitative easing and
emergency-level interest rates, it looks like a large part of the European
Union is headed towards Japanese style debt-deflation.2 Thus any significant
rise in stock prices would be without economic basis and therefore
Elsewhere, China is showing cracks – ok, let’s face it, huge crevices3 –
Japan is still in the doldrums after a quarter-century and the US, as well
as other OECD countries, is still not showing concrete signs of recovery.4
In fact, looking at price/earnings ratios shows that, whilst the US is not
currently at the extremes reached during the global financial crisis, the
S&P 500 is looking expensive again (see chart 4).
Chart 4 - Sources: Robert
Shiller, Irrational Exuberance and multpl.com.
Realistically there are few medium-to-long-term buyers’
markets. As I have said before, what goes down doesn’t necessarily come back
up. We can control risk but only influence return.5
That said, there may be one possible opportunity: Russia. Looking at the
Moscow stock exchange index (MICEX) shows that Russian stock prices have
remained fairly stable over the last three years or so. However, the Russian
Trading System Index (RTSI) – an index of 50 Moscow exchange-traded stocks –
which was typically in synch with the MICEX, is considerably cheaper
That’s no coincidence. The RTSI is calculated in US dollars. I’ve noticed
that ever since the US imposed sanctions on Russia at the beginning of the
Ukrainian crisis, the greenback has strengthened significantly against the
rouble. In fact if we plot the rouble-dollar rate next to RTSI values, we
can see there is a direct correlation (see chart 5).
Chart 5 - Sources: Bloomberg,
MICEX & St. Louis Federal Reserve.
This anomaly makes the Russian stock market a potentially
interesting buying opportunity should there be any further weakness either
in stocks or in the rouble. That’s because the drop off in prices is because
of exchange rates, which are affected by outside events which could change
in the long term.
Of course, the big question remains how long will these low prices last?
That’s the hard part. The answer possibly lies deep in the bowels of the US
state department and, whenever sanctions are lifted, whether this will have
any telling effect on the rouble-dollar exchange rate and Russian stocks and
to what extent.
I’ll leave those kind of predictions to others. However, I believe there are
three vitally important things to remember when investing in shares: spread
risk by diversifying; go for market averages, not individual stocks; and
seek advice from an independent advisor.
2 Steve Keen’s 2015 Economic Outlook, www.ideaeconomics.org
Please Note: While
every effort has been made to ensure that the information
contained herein is correct, MBMG Group cannot be held
responsible for any errors that may occur. The views of the
contributors may not necessarily reflect the house view of MBMG
Group. Views and opinions expressed herein may change with
market conditions and should not be used in isolation.
MBMG Group is an advisory firm that assists expatriates and
locals within the South East Asia Region with services ranging
from Investment Advisory, Personal Advisory, Tax Advisory,
Corporate Advisory, Insurance Services, Accounting & Auditing
Services, Legal Services, Estate Planning and Property
Solutions. For more information: Tel: +66 2665 2536; e-mail:
[email protected]; Linkedin: MBMG Group; Twitter: @MBMGIntl;