Long-term equity funds are a good choice to invest your money
SRIWIPA SIRIPUNYAWIT
How many of you are hurt by the current stock market's downturn? Unfortunately, sometimes there aren't many choices left aside from holding onto your investments or selling them off and making peace with yourself.
However, according to some experts, sometimes there are still opportunities even when the market is heading downward. According to Suthee Luangaramkul, research manager at Lipper Thailand, the recent stock market slump can be considered a buying opportunity for those interested in investing in long-term equity funds (LTFs).
"The investors may take the market slowdown as an opportunity and start accumulating LTFs in order to buy it cheap and sell it high," says Suthee.
A LTF is a vehicle the government uses to promote long-term investment in equities and long-term savings. It was introduced in 2002.
The funds invest at least 65 per cent of their assets in equities, while the remaining in others such as fixed-income. The funds have proved quite popular as there are a total of 52 LTFs in the market today.
The key attractiveness is that the government allows tax-breaks for LTF investors. The investors can deduct up to 15 per cent of their investment from their taxable income, but not more than 300,000 baht. The only condition is that they will have to invest for at least five calendar years or they have to repay the taxes.
However, since June 30, 2007, there have been no new LTFs introduced into the market, so investors would have to choose from existing ones. The tax deductions are to be available until 2016.
How are LTFs categorised?
LTFs can be categorised into a few classes, says Suthee, which are:
Dividend payment.
There are 26 LTFs that pay dividends to investors while the remaining 26 funds don't.
Percentage of total funds invested in equities
LTFs must invest at least 65 per cent of their total funds in equities. There are seven funds investing 70 per cent of the total assets in equities, while there is one investing at least 75 per cent in stocks.
Using hedging instruments or not
Only two funds employ hedging tools. They are One Asset Management's 1 AM Smart LTF and SCB Asset Management's SCB Smart LTF.
Pros versus cons
LTFs are investment opportunities for those wishing to invest in stocks but do not want to manage the stocks by themselves. LTFs can be managed by fund managers.
Meanwhile, LTFs encourage long-term investment, or, long-term savings among investors since the investors need to hold their investments for at least five calendar years. Moreover, the investors can get tax-breaks from investing in LTFs.
Some disadvantages are that investing in stocks always involve high risks. Thus, the investors must first ask themselves if they can accept such high levels of risks. If not, LTFs are not recommended.
If the market collapses, investors cannot withdraw their money until the investments complete five calendar years. So, the risk-averse investors should avoid such funds.
------------
How to invest in LTFs
Like all investments - buy low and sell high. According to Suthee, investors should invest when the prices of the funds or NAVs are cheap. It's recommended that investors start investing when the stock market is down.
"However, the thing is, you can never know when the market is going to go down or bottom out or is moving up, so the best method is to gradually invest in the funds at different points of time," he explains.
In other words, Suthee means implementing the Dollar-Cost Averaging method, which can help soften the impact of market fluctuations and minimise a portion of emotion and guesswork in investing.
Meanwhile, he explains, investors should divide the money and gradually invest at different points of time and even in different funds.
For instance, the amount of invested money should be divided into four and invested on a quarterly basis, or it can be invested every six months, every two months or on a monthly basis in order to leverage risks.
By doing so, the average cost of investment will become lower over time. This also lessens the risk of investing a large amount in a single investment at the wrong time. This can also help build good investment discipline.
"Moreover, don't put all your eggs in one basket. It's important to diversify your investment," Suthee says.
Meanwhile, the expert explains, investors should select those funds they like, say for three to five funds, and split the money and invest in them at different points of time. Sticking to only one fund could mean too high a risk. Since the stock market carries high volatility, this method can help reduce risks it entails.
-------------
Guidelines to the right LTFs
Investors need to do their homework. They need to do research about the funds they are planning to invest in. The easiest and quickest way is to get as much information from web sites or from the companies directly.
What the investors should be looking at are investment strategies and policies of the funds, fund fact sheets, report of past performance, investment portfolios and the like.
Many would say the historical record of performance can't really guarantee the future performance. However, investors are not left with many choices.
According to Suthas Ruangmanamongkol, managing director of Tisco Asset Management, though past performance can't forecast the future, it's an important evidence how the funds have performed.
"Investors need to use the data that goes back for a certain period of time, say at least three-year period. Recent data won't tell much," Suthas explains.
The investors, he continues, may pick a few top performers, say top three or five, and invest on them gradually.
- Other things that the investors should look at include standard deviation and sharpe ratio (see table).
Standard deviation reflects volatility of the fund and it's returns. So, the lower, the better. Sharpe shows the ratio between the returns and risk the fund entails. It tells the investor how much the returns the fund delivers when the risk is equal to one. So, the higher, the better.
- Select more than just one fund. To be on a safe side, it's necessary to allocate your investment wisely. You should choose several best performers whose investment strategies and policies fit your risk appetites and expectations well. Putting all money in one fund can be too risky.
- Asset management companies don't normally give out all the aforementioned ratios to their investors. Anyway, there are a few web sites where the investors can search for information. They are:
- Association of Investment Management Companies or http://www.thaimutualfund.com/AIMC/FundPerformance.jsp
- Lipper Thailand's web site: http://www.lipperweb.com/
- Finansa's web site: http://www.finansa-asset.com/
Prev
1
2
3
4
5
6
7
8
9
10
11
12
Next
