Accredited investor funds can reap rewards for some

Since most such bonds offer higher returns than investment-grade bonds to compensate for credit risk, fund managers now have more opportunities to generate better yields for accredited investors. 

Accredited investors have higher risk-taking capability and require less protection than other retail investors because they have more investment alternatives in more complex assets to broaden their chances of reaping higher returns. 

AI funds can be offered only to accredited investors and high-capital investors as defined by the SEC: 

 

Accredited investors 

l Institutional investors such as the Bank of Thailand, commercial banks, finance companies, credit fonciers, securities houses, mutual funds, provident funds, the Government Pension Fund, the Social Security Fund, international financial institutions, the Deposit Protection Agency and the Stock Exchange of Thailand.

• High-net-worth investors defined as juristic persons with equity of at least Bt100 million or securities investment of at least Bt20 million, or individuals with at least Bt50 million in total assets or Bt4 million in annual income or with Bt10 million invested in securities.

Although the SEC allows AI funds to invest freely in unrated or non-investment-grade bonds, each fund must comply with the company-limit rule by investing in a single issuer at up to 25 per cent of its net asset value (NAV). 

AI funds must invest in at least four bonds from different issuers. This rule differs from those governing general fixed-income mutual funds in that the SEC allows a fund to invest in unrated or non-investment-grade bonds of a single issuer at up to 5 per cent of its NAV – that is, the company limit – and the total investment in those bonds must not exceed 15 per cent of its NAV – that is, the product limit. 

 

High-capital investors

l Retail investors with a minimum initial subscription of at least Bt500,000. 

AI funds offered to retail investors must comply with the general investment rules of the SEC. Although a fund can invest in unrated or non-investment-grade bonds freely, it must comply with the company-limit rule, which differs from AI funds offered only to AIs. For non-financial juristic issuers, a fund can invest up to 15 per cent of its NAV, while for financial institution issuers, it can invest up to 20 per cent. 

An AI fund management company for retail investors must invest in bonds issued by at least five companies. 

AI funds’ limits on unit transfers differ from general mutual funds. They can be transferred only to other AIs and high-capital investors, or to heirs.

AI funds give investors more opportunities to reap higher returns than general fixed-income mutual funds. Because their rules and regulations and investment assets are more complicated, they suit only investors with higher risk-taking capability and deeper knowledge of investment in unrated or non-investment-grade bonds, or high-yield bonds. Prospective holders of AI funds must study the rules and regulations extra carefully, including their prospectus, before making their investment decisions.

Investment carries risk. Please carefully study fund prospectuses before making your investment decisions.

 

Ladawan Charoen-Rajapark is certified financial planner/managing director at Asset Plus Fund Management