Fixed Income Good For Low-risk Investors

[Sunbelt Asia]

Today's Bangkok Post

http://www.bangkokpost.com/Yourmoney/24Apr2006_money06.php

Fixed income good for low-risk investors

SRIWIPA SIRIPUNYAWIT

Investors who are content with modest returns and prefer to make low-risk investment choices, other than bank deposits, may want to consider short-term, fixed-income funds, which still offer tax exemptions on capital gains.

Given the steady rise recently in interest rates, bank deposits are becoming a more favourable investment choice for risk-averse consumers.

Most banks currently offer less than 3% on savings accounts and between 3.25% and 4.5% on three- to 12-month fixed accounts. But competition for funds has prompted some banks recently to offer 5% or more on fixed deposits for less than one year. Bangkok Bank, which had been resisting the trend, has joined the fray with an offer of 5.125% a year on a 10-month fixed account, with a minimum deposit of 100,000 baht. Deposits must be made before April 30.

However, for investors looking to diversify their portfolios, it might be worth looking into short-term, fixed-income funds, some of which offer similar or slightly higher yields compared to bank rates.

Sukkawat Prasurtying, executive vice-president of Asset Plus Fund Management, said a large number of investors were flocking to put more money into bank deposits to enjoy special rate offers. However, he is still confident that short-term, fixed-income funds were a reasonable investment choice for many.

Although interest gains were not very high, these funds were still attracting certain groups of investors, Mr Sukkawat said.

Asset Plus has introduced the Protection Government Bond Fund-3M1, the offering for which opened last week and closes tomorrow. The fund will be invested in short-term bonds, to mature within three months. The expected yield is around 4.3% and the minimum purchase is 50,000 baht.

Mr Sukkawat said this type of investment still had competitive advantages. Unlike fixed-deposit accounts, which are subject to 15% interest withholding tax, capital gains from short-term, fixed-income funds are usually tax-free.

He points out that if one were to choose a 10-month fixed bank deposit paying 5.125% a year, once the 15% tax is deducted, the return would be around 4.3%, he added.

"Besides, GBF-3M1 yields are considered higher when compared with fixed-deposit accounts of three months," he said.

He predicted that the Bank of Thailand's 14-day repurchase rate, currently at 4.75%, would continue to increase to 5%.

ING Asset Management is also offering the short-term, fixed-income ING M-Plus 1 Fund, with the initial public offering to close on Thursday. The fund will be invested in government bonds, treasury bills, bank deposits and instruments issued by commercial banks with maturities not exceeding six months. The expected yield is around 4.4% and the minimum purchase is 10,000 baht.

Maris Tarab, managing director of ING Asset Management, believes the fund should still attract certain groups of investors given current rising interest rates.

Last year, he said, the total investments flowing into fixed-income funds accounted for 200 billion baht. However, from the first quarter of this year, the amount had already hit 100 billion baht.

"The funds should still be able to attract investors as the yields are still attractive. However, this year we'll have to diversify the portfolios by investing in instruments issued by financial institutions to make the yields even more attractive," Mr Maris said.

Both firms are unlikely to introduce any new equity funds into the local market this year, as stocks are still quite volatile.

However, Mr Maris said that ING was planning to launch a fund that would be invested in Asian countries outside Thailand. The fund is scheduled to be offered to local investors around the end of May. Fifty percent of the fund would be invested in the Japanese market, while the rest would be spread throughout selected Asian countries.

Asset Plus also plans to focus on short- to medium-term, one-to-two-year, fixed-income funds. The fund manager is still confident in the Thai stock market, saying that some sectors, such as energy, should continue to perform well.

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