Rtf And Ltf

[chivo]

Any employed expats invest in these? Looking for basic info and the pros and cons. Thx

[fletchsmile]

There are quite a few threads on this. Summarising my own views:

LTFs (Long term Equity Funds)

I love them. My favourite investment full stop. Not just Thailand. My first choice to invest each year while working and paying tax here

+ You get tax relief at your marginal rate of tax (up to 37%). So 100 baht investment can effectively cost as little as 63 baht. (So even in the stockmarket goes nowehere in 5 years you gain over 50% as a 37% taxpayer)

+ You only have to hold for 5 calendar years. Should you really want you can make this 3 years and a few days, as a day in Yr1 + full Yr2,3,4 and a day in Yr5 qualifies

+ Mainly equity based, so you would expect longer term to at least keep pace with inflation. You can get some funds with about 1/3 bonds

+ Thai stock market has done very well over last decade or so. Longer term prospects look good

+ In THB currency, so helps build THB assets for someone expecting to live here longer term. This in turn helps reduce exchange rate risk

+ Capital gains are tax free

- There is some equity risk, and prices go up and down so not guaranteed and you may get less than you put in. The tax relief provides a big cushion vs this though. eg for a 37% taxpayer 100 baht investment effectively costs 63. So it needs to fall 37% for you to start making a real loss

- Need to hold for 5 calendar years/ 3 yrs + a few days either side. You can tho' cash in earlier and then you suffer the tax penalty on the relief you got. Fair enough really. In addition if you are investing in equities (as opposed to trading) you should generally be looking 3-5 year minimum anyway, so no big deal for me.

Overall minor inflexibility for a great investment

RMFs (Retirement Mutual Funds)

+ Very similar benefits to LTF as above in tax relief etc

+ Wider range of funds, including overseas funds, gold funds, fixed income etc, so not just limited to Thai equities. So helps you diversify

- BIG MINUS. Like a pension fund you can only access it at aged 55. {Earlier is possible by suffering tax penalty}. This is the single biggest factor why in Thailand I have never taken one out. If you're late 40's / 50, then OK that's not long to wait. For an expat in their 20's 30's that's a long wait. Plus as an expat there's always the risk you may leave Thailand for whatever reason. A lot can change in decades. (contrast the shorter term LTFs where you could pop back in a couple of years and take tax free. With an RMF you come back when old and grey, and think of all the other things you could have done or invested it in over your lifetime: deposit on a house, school fees, even a mia noi on a Thai theme etc.

My view the inflexibility isn't compensated by the tax relief for a younger guy who is in a foreign land. Could be useful for someone closer to retirement.

Both give tax relief on your marginal rate (10% up to 37%) on the lower of 15% of salary or THB 500k per year.

LTFs were scheduled to be phased out. My guess is they will not pull them yet for new investments for a few years at least

Edited October 8, 2012 by fletchsmile

[chivo]

Thx fletch. Appreciate it. So is 500k the most that can be invested each year?

[skippybangkok]

Thx fletch. Appreciate it. So is 500k the most that can be invested each year?

Nope......

500 k for each = million

Depending on ur tax bracket, get 400k tax back.

If on provident fund or other such schemes, then less on RMF.

Finally, can invest more, but no tax break for the over amount.

[CWMcMurray]

Max contributions are for 15% of income or 500k

Although for RMF you also have to add in any amount paid in to Provident fund... RMF + Provident fund contributions added together can be 15% of income or 500k

All in all they are both good deals if working on Thailand and planning to stay in Thailand long term