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Cash Course with Shiva: Tips to Make Better Retirement Mutual Funds (RMF) And Super Saving Funds (SSF) Purchases

by Aiden

Shiva Sachaphimukh from Farnam Tree gives his insight.

Putting a little bit of work before purchasing mutual funds that provide tax benefits can go a long way. Thailand offers benefits to taxpayers that invest in certain classes of mutual funds that have restrictions on holding periods. These are Retirement Mutual Funds (RMF) that are redeemable upon the age of 55, and Super Saving Funds (SSF) that have a 10-year holding period. The SSF is an updated structure of the previous Long Term Equity Fund (LTF) programme that some readers may be familiar with.

Unfortunately, most people wait until the end of the year to purchase these funds, and make haphazard decisions because they are short on time. Doing a little bit of work now can help you get ahead of the curve.

Make Decisions That Match Up with Your Risk Tolerance

Before purchasing any funds, figure out what level of risk you are comfortable with. The great thing about the RMF and SSF pool of investments is that there are instruments for all types of investors and risk appetites.

If you are a conservative investor you will want to invest in bond funds. Similarly, if you have a higher risk tolerance, there are plenty of options in equity funds.

Your age matters a lot when approaching this. A 30-year-old will have multiple decades of holding RMF funds, and therefore can consider more exposure to equities, compared to someone closer to 55 years old.

Go Global

RMFs and SSFs have many funds that provide exposure to markets and investments outside of Thailand, and we encourage you to utilise this. In the past, options were more limited, and the LTF programme was limited only to domestic market investments. 

Despite this change, many investors still stick with domestic funds due to home-country bias.  We believe this is unwise. Global diversification helps to reduce risks, and provides an opportunity to invest in markets that have higher growth than Thailand.

Make sure higher fees are justified

Most SSFs and RMFs sold are actively managed, meaning that the fund managers are aiming to beat the market return. This typically results in the funds having higher management fees, compared to their passive counterparts.

Before purchasing fund(s) with higher fees, make sure that you can justify the purchase. Check the historical returns relative to the index, and examine their track record. A large share of active funds underperform the market in the long run. Picking passive funds is a conservative route that has lower risks. 

Beware of ‘Diworsification’

We frequently encounter investors that have a long list of RMF and SSF investments. This is because each year they are buying funds recommended to them by friends or bank staff. This creates a large assortment of funds that is not necessary. These are investments that in many cases need to be held for decades, and a lengthy list of funds can be cumbersome to keep track of.

We have highlighted in earlier articles that you can maintain an investment portfolio under a well-crafted strategy with single-digit number of fund holdings. If you have read our previous article on diversification, then balancing assets with differing characteristics can help you greatly.

This makes your life easier, and you can continue purchasing the same funds every year without fail. Being consistent and sticking to the plan tends to yield the best results over the long term, as compounding will be allowed to continue unabated.

SHIVA SACHAPHIMUKH is a Director and part of the investment team at Farnam Tree. He is a licensed Investment Consultant with the Thai Securities and Exchange Commission (SEC).

Farnam Tree is a boutique investment and wealth management firm based in Bangkok. The company is a licensed Investment Advisor under the Thai SEC and Ministry of Finance.

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