Investment strategies to cope with changing deposit protection

However, the Cabinet recently approved a draft of the decree that maintains the deposit protection at Bt50 million, effective from August 11 this year, because it realised that the above-mentioned reduction would affect management of assets and movement of investors’ deposits. However, if economic conditions should change sufficiently, all involved agencies will review the amount of deposit protection.

We recommend that investors prepare themselves for this change in deposit protection rules by increasing their own wealth through mutual funds, whose returns are exempted from personal income tax. Our recommendations are broken down by investment objective as follows:

 

Investment that can replace saving deposits with high liquidity

_ Secure money market funds: The policy is to put all investments in government bonds, with low risk of credit default because the issuer is the government.

_ Money market funds and short-term fixed income funds: The policy is to invest in short-term bonds issued by commercial banks or companies. While these contain higher risks than the above-mentioned secure money market funds, they could generate higher returns.

Like saving deposits, all these investments could yield higher returns, so they suit those seeking investments to replace saving deposits or those waiting to invest in other assets.

 

Investments that can replace fixed deposits

_ Rollover fixed-income funds: These funds, with fixed terms of three months, six months or one year, are similar to fixed deposits with estimated returns specified on the date of investment. Investors stand a chance of getting higher returns than fixed deposits through investing in different debt instruments with different risk levels – some funds mainly invest in low-risk government bonds, some in higher-risk local or foreign corporate bonds.

_ Credit Link Note (CLN) or First-to-Default (FTD): Investors can invest in CLN or FTD through private or mutual funds, whose returns on investments are linked to debt instruments’ credit events. These investments could enhance investors’ opportunities for higher returns than fixed deposits with higher risks from creditors (the issuers of debt instruments). 

If you are seeking higher returns than saving deposits, with low to medium risk level, all these investments are for you. 

In our next column, we will present more complicated types of investment.

 

Investment contains risk; please carefully study the fund prospectus before making your investment decision.