Thai Saving Plan

[Ketsara]

Dear all,

Hoping for some good advice, I have this question to ask:

My sister in law is a typical Thai employee, working hard for a few baths. In one way or the other, she manages to save a few thousand bath per month as well, and is even looking into something that will help her into saving something for her old age.

Question to you: is there any stable long term saving plan that allows to save a few thousand bather per month and provides good interest?

Or would you know of any alternative that may work out for this purpose? And please, don't make it to complicated: the woman has never been out of Thailand, so sending money somewhere else would not feel ok with her.

Thank you!

Ketsara

[anthonyu]

Dear all,

Hoping for some good advice, I have this question to ask:

My sister in law is a typical Thai employee, working hard for a few baths. In one way or the other, she manages to save a few thousand bath per month as well, and is even looking into something that will help her into saving something for her old age.

Question to you: is there any stable long term saving plan that allows to save a few thousand bather per month and provides good interest?

Or would you know of any alternative that may work out for this purpose? And please, don't make it to complicated: the woman has never been out of Thailand, so sending money somewhere else would not feel ok with her.

Thank you!

Ketsara

Without getting complicated, every Thai employer already provides a retirement fund which all employees contribute to. Its different in every place with some paying out at retirement age and some paying out when you leave the company. You can have her start to contribute more into the program as a starter since most employers match contributions up to a certain point.

If she still has excess to invest something that is easy to understand might be a mutual fund since they'll tell you exactly what they're investing in and percentage of investments in eash sector. Just remember there's always risk with the promise of higher returns. With inflation the way it is, I don't know if this would help though but some interest is better than none i guess.

[AFKAFSinLOS]

Some ideas:

1) As mentioned above, get her to check out what her employer offers in terms of retirement benefit schemes first if anything. Companies with more than about 50 (?) employees here are supposed to offer a scheme. Advantages here are: 1) tax relief 2) employer might contribute like for like or better 3) often lower charges for a Group. Disadvantages: 1) often have to wait until 55 to take 2) if you switch employers you will generally be able to transfer your own employee % contibutions, but only get a % of the employer contributions, eg leave scheme after 1 yr get 10%, leave after 4 years get 40% of what employer has contributed etc, whereas what you have contributed personally is always yours, subject to tax rules.

2) Another choice is privately taking out Retirement Mutual Funds (RMFs). Similar in many ways to an employers scheme. You contribute personally and get tax relief. You tie up until 55. If you need the money earlier you can take out but pay a tax penalty.

3) Long Term Equity Funds (LTEFs). Not really specifically for retirement. But excellent in terms of tax. Tie up your money for only 5 years. The govt gives you tax relief at marginal rate. Better in my view than RMFs given flexibility. This is my personal favourite in Thailand. For a top rate tax payer at 37% a THB 100 investment costs only THB63. If your friend has only a few thousand to spare each month, I'm guessing she is more likely a 10%/20%/30% tax payer, but it's still a good deal.

4) Normal mutual funds. Not necessarily for retirement but a good mid-long term investment vehicle. Compared to RMFs and LTEFs they have less restrictions and more flexibility, but you don't get tax relief.

2), 3), 4) are mainly based on mutual funds you can select from a range of: high risk/return equities, low risk cash based, fixed income, commodities or anything in between. You can usually contribute a minimum of around 5k each time, as and when you please. Don't get tied into anything that commits you each month. Talk to her bank or any mutual fund house, eg Aberdeen, ING, BAY, etc.

5) There are participating/ whole life insurance schemes which combine insurance and savings available. Occasionally they suit some people, and you can get tax relief. Generally avoid these like the plague and anyone who tries to sell them to you. Buy insurance only separate from savings.

6) Consider foreign currency accounts. eg AUD pays 5.5 - 6.5% in Thailand. Not as much as in Australia, but convenient for your average Thai. Yes there's currency risk so don't put all eggs in one basket.

Basically as she's investing for retirement which is way off yet, she can probably take some risk to generate higher returns over a longer time frame. Some equity exposure would be sensible, as would spreading money around in different types of assets.

You're also right to probably dismiss anything that gets into offshore/ transferring money outside Thailand. For your average Thai it is more hassle than worth, and for small amounts not worth it in charges. That's not to say your hi-so wealthy Thai is playing by the same rules...

Before all that though, sort out having enough cash for difficulties. Then insurance. Then start investments. Doing regularly and starting early is key...

Edited June 24, 2008 by AFKAFSinLOS

[Irene]

Dear all,

Hoping for some good advice, I have this question to ask:

My sister in law is a typical Thai employee, working hard for a few baths. In one way or the other, she manages to save a few thousand bath per month as well, and is even looking into something that will help her into saving something for her old age.

Question to you: is there any stable long term saving plan that allows to save a few thousand bather per month and provides good interest?

Or would you know of any alternative that may work out for this purpose? And please, don't make it to complicated: the woman has never been out of Thailand, so sending money somewhere else would not feel ok with her.

Thank you!

Ketsara

[Irene]

Sorry for the previous post, I pressed the wrong button.

In agreement with all the previous posts. To make it simple, if your sis in law's saving is surplus to requirements, then I would recommend LTF mutual fund with dollar averaging cost arrangement. Unfortunately, I can't remember which mutual fund company has this sort of a plan. From my memory, it could be AJF or Kbank asset managemen company. The plan is such that on a certain day of a month your sis's bank account would be taken out at a fixed sum and invested in one fund portfolio. By a few years, the saving could amount to a big sum with historical return compounded at a reasonable level, more than 10% is not unknown.

Why is it good? Because studies have shown that in the long run, returns on equity is far better than fixed income instrument. By having dollar averaging, you even out the speculative movement and become more stable in return. In the long run, stock index goes up.

[Ketsara]

Dear All,

thank you for your wonderful advices! Just what I hoped for, proving a clear insight on the options available. I agree that the employer plan would be the most convenient to go with, but I will look into the other options as well.

It seems that my family in law- members are also very much in favour of so called life insurances, building some money over a period of time. How would you rate such a plan against these alternatives?

I am very new in Thai finance, just used to European plans (which offer so much more interest, even on short term), so I am just trying to get things clear...

Thank you for all your advice!

Kind regards,

Ketsara

[AFKAFSinLOS]

Most Thais don't save/invest enough for a variety of reasons.

Of those that do, you're right they often go for life assurance schemes. As a general rule the world over: Life assurance is important. Savings/investments are important. But usually the products that combine both are poor value for money. Thailand is just as bad as anywhere on this score, and perhaps worse given the average sophistication and understanding of the consumer is less.

Unfortunately people often can't get their head round the idea, or feel uncomfortable at "getting nothing back" for what they pay in. So they mix the two. They would rather pay THB 5,000 into a life assurance plan with "something" back at the end, not realising how poor. While in reality it is usually better to pay THB 2,000 for insurance which pays only if something bad happens (and in most cases zero), and invest the THB3,000 in a proper and superior investment scheme. UK and US in particular regularly discredit these "participating insurance" schemes, with good reason...

[Irene]

Well said. Insurance endowment tends to be far less on returns unless due to a claim on bad happenings. However, I had an exceptional experience when I went in for endowment 15 years ago when interest rate was at 10% range which was the basis of pricing. However, five years later, interest rate came down dramatically to 5% range, that endowment policy turned out to be better rewarded.

[TerryLH]

anthonyu

"Without getting complicated, every Thai employer already provides a retirement fund which all employees contribute to. Its different in every place with some paying out at retirement age and some paying out when you leave the company."

You don't really believe that, do you?

Omsin Bank (government bank) has a deal where for every 50 baht you put in a special account you get a number. each month they draw numbers for cash prizes. Up to 10 million, I think.

You have to leave the money in for 3 years or you lose some of the interest. The numbers are good for the three years.