Depositors still leery of risk
Protection cut not likely to help funds
The outlook for the mutual fund industry remains bright, but less cash is expected to flow in that direction after bank deposit protection was cut to 1 million baht as most depositors prefer low-risk investment, says Association of Investment Management Companies (AIMC) chairman Vasin Vanichvoranun.
The Deposit Protection Agency lowered deposit protection from 5 million baht to 1 million per depositor or financial institution, effective from Aug 11.
The reduction is expected to affect only about 2% of the country's total depositors.
Finance Minister Arkhom Termpittayapaisith confirmed Thai financial institutions remain strong and stable, both in terms of high average capital adequacy ratio, which stands at 20%, higher than many countries in the region, and ample liquidity that allows institutions to survive even amid volatility during the pandemic.
Mr Vasin said bank depositors normally avoid investment risks and it will be a challenge for fund managers to persuade them to invest in mutual funds.
However, he said the outlook for the mutual fund industry is more optimistic than last year and no more funds are likely to be shut down due to the pandemic.
Existing mutual funds are expected to outperform on average, especially global equity funds with high returns supported by the global economic recovery, said Mr Vasin.
Maethee Chandavimol, managing partner of Finnomena, a financial investment advisory, said a good portfolio allocation that is suitable to each depositor's risk tolerance will provide higher returns than deposits.
A variety of financial and investment products have lower risk and higher returns than deposits, he said, such as the Bank of Thailand's bonds, treasury bills, government bonds and corporate bonds for state-owned enterprises.
For depositors with low risk tolerance, Mr Maethee recommended investment in products from state banks, such as lotteries from the Government Savings Bank, GH Bank and Bank for Agriculture and Agricultural Cooperatives that usually provide returns of around 1-2%.
In addition, depositors can move their deposits to state-owned banks, which still provide full deposit protection, or diversify their investments among the 35 financial institutions covered by the Deposit Protection Law, which provides protection of up to 35 million baht, though the returns are low, he said.
Depositors who can tolerate moderate risk are recommended to invest in money market funds and high investment-grade fixed-income funds with investment in state-owned enterprise bonds or corporate bonds with high credit ratings, according to Finnomena.