The Federation of Thai Capital Market Organizations (Fetco) is preparing to propose a capital market development plan to the Finance Ministry encompassing a long-term equity fund for youth to promote savings, a capital fund for small and medium-sized enterprises (SMEs) and a revision of tax incentives for the Super Saving Fund (SSF).
Fetco chairman Paiboon Nalinthrangkurn said the plan would aim to broaden the country's investor base, which is still small in relation to the size of the country's population.
There are about 3 million investors in the stock market and mutual funds at present. Fetco set a long-term target to raise this to 10 million.
The targeted groups within the population encompass the entire labour system.
Fetco plans to provide as much investment knowledge as possible to the public while offering tax incentives to attract people to invest in stocks.
The organisation plans to begin by promoting small investments through the dollar cost averaging (DCA) model as the public still lacks investment experience. It will focus on regular investments that could grant investors a good cost averaging and the opportunity to obtain high returns in the long term.
In addition to the labour force, Fetco also wants to encourage young people, including students, to invest in equity mutual funds that are structured like a DCA investment, which would grant their parents tax deductions on the investment.
As the investment period is 7-10 years, the students will also benefit from the investment in the long term as they will gradually earn profits in their own names.
Fetco plans to propose to the Finance Ministry the revision of investment conditions and tax incentives for the SSF, which was established to replace the long-term equity fund (LTF).
The SSF only received 10 billion baht in investment funds this year, which compares unfavourably with the LTF, which saw an annual investment of 20-40 billion per year.
"The SSF will have to revise its investment conditions and tax incentives again. We are concerned funds will move into foreign markets without flowing into the Thai stock market at all. Taking care of baht appreciation is not the purpose of the SSF. The fund is meant to boost investment in the Thai stock market and strengthen it over the long run," said Mr Paiboon.
"We want to convert short-term investors to become long-term investors by reducing the dividend tax from 10% to 5%, or even offer an exemption to traders who hold stocks for more than one or two years. China has used this model to stimulate long-term investment and it has proven successful."
In addition, Fetco is preparing a proposal for the Finance Ministry to set up an SME support fund to help small businesses access a working capital fund.
Bank loans are often SMEs' only source of funding, said Mr Paiboon. If a bank deem loans to some SMEs as high-risk investments, they have few other options.
He said an SME support fund would be worth about 100 billion baht with a 10-year investment period.
The capital will be raised from both institutional investors and the general public, split into 70% investment in zero-coupon government bonds and 30% in SME bonds.
To mitigate risks, the selected SMEs must have no non-performing loans, good records of corporate tax payment and the potential to resume operations within 2-3 years, so it is likely they will be able to pay interest, said Mr Paiboon.
"This SME support fund is an alternative solution to help SMEs, but the government also needs to help with tax incentives such as tax deductions to attract investors, as it would take up to 5-10 years to see yields. The Thai Credit Guarantee Corporation also needs to guarantee the first 15% of the 30 million baht in bonds to reduce risk and boost investors' confidence," he said.