DARANA CHUDASRI AND NUNTAWUN POLKUAMDEE

Fund managers have welcomed proposals to raise investment limits on long-term equity (LTFs) and retirement mutual funds (RMFs) as a policy move offering benefits to both investors and the capital market.

Finance Minister Suchart Thada-Thamrongvech met yesterday with local brokers and fund managers at the Stock Exchange of Thailand to discuss recent volatility in the global markets.

Dr Suchart said the government was ready to offer tax incentives to help support the capital market.

Among the proposals being discussed was an increase in current tax deductions offered for contributions to LTFs and RMFs, now set at no more than 300,000 baht or 15% of taxable income per fund, whichever is lower.

An increase in the contribution limit would be allowed only in the fourth quarter of the year, according to policymakers, and represented a short-term measure aimed at supporting the capital market in the wake of the current global turmoil.

The Association of Investment Management Companies, which represents local asset managers, welcomed the proposal to raise tax benefits for LTFs and RMFs.

Voravan Tarapoom, the AIMC president, said that either scrapping or raising the limit of 15% of taxable income would benefit lower- and middle-income investors.But increasing the monetary limit to, say 700,000 or one million baht in contributions would only benefit high-income taxpayers, she said.

"If instead the 15% cap was eased, it would allow lower- and middle-income investors to more easily shift their savings to LTFs or RMFs."

Sombat Narawutthichai, the Securities Analysts' Association secretary-general, said that the easing of the 15% rule could potentially lead to an additional five billion to 10 billion baht worth of investments in LTFs and RMFs per year.

"Personally, I think we could raise the limit to 30% to 40%. This would help provide incentives to workers with income of say 30,000 to 40,000 baht per month to set aside more for long-term savings," he said.

Araya Thirakomen, deputy managing director and head of provident funds at Tisco Asset Management, said that while increasing tax incentives was positive for the sector, fund managers would likely remain cautious in their investment strategy in the current market environment.

Calls by policymakers for institutional investors such as provident funds and pension funds to raise their investment activity in the current situation needed to be considered carefully, she said.

"These types of funds typically follow a conservative strategy as it is, considering that the purpose is long-term investment for retirement," Mrs Araya said.

While investment professionals generally agree that equities offer the best opportunity for long-term gains compared with other asset classes, investors also needed to consider their own saving needs and appetite for risk.

A younger investor, for instance, could afford to accept greater volatility in returns from a stock portfolio than an investor close to retirement with little time to wait for a shift in market cycles.

Mrs Araya said that authorities should also consider other options to helping support long-term savings in the country, including implementation of the long-proposed national provident fund.

Retirement savings currently are provided through the state-supported Social Security Fund and voluntary provident funds, RMFs and LTFs. A national provident fund would be made compulsory for all employees and would be patterned after similar systems used in Hong Kong and Singapore.

Anusorn Buranakanonda, managing director at BT Asset Management, said sharp declines in share prices over the past year meant that investors today had considerable upside potential for gains over the long-term.

The SET index has fallen nearly 30% this year even though economic and corporate earnings growth remained stable and price-to-earnings ratios had fallen to single digits.

According to the Revenue Department, 124,429 taxpayers were RMF investors last year, with total investments of 31.48 billion. Tax claims in 2007 were filed by 80,381 investors, involving fund flows of 8.213 billion baht and resulting in lost tax revenues for the state of 1.289 billion.

For LTFs, a total of 53 funds with 140,663 investors were registered at the end of 2007, with total assets of 36.9 billion baht. A total of 118,875 investors filed tax deductions for investments of 15.1 billion baht in 2007, resulting in foregone tax revenues of 2.46 billion.

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