What Protection when buying investment funds from Thai Banks?

[flakes]

Hello,

Just wondering how it works.

Most bank in Thailand offer investment funds for their clients something like : a Fixed income fund and or a mixed Bonds fund with for example interest 2,9 % for period of 3, 6 or 12 months.

Once you buy it then they will give you an bank book that will state how many units you have bought of that fund.

Now it mine understanding that in case that bank is going bankrupt then only the saving and deposit accounts are protected by the government so not any investment funds are protected by government...

That is why these investment funds do not hold any tax there are tax free , but no government refund in case of bankrupt.

So then if that bank goes bankrupt and i have bought their mixed bond fund where can i then claim back my investment ?

Is there another company behind that bank still responsible?

Hope some one here can explain how this it..

Thanks

[fletchsmile]

Hi Flakes

There are controls in place to protect you as follows:

- Mutual funds use an independent custodian. So if you buy say a fund Bualunag (BKK Bank's fund management arm) then all monies for the fund are held at an independent custodian, and they will be held at the custodian bank, eg say Standard Chartered Bank. So if Bangkok Bank goes bankrupt or even Bualuang the asset management arm goes bankrupt then your money is still safe at Stan Chart

- Client money for the mutual fund must be kept separate from the mutual fund manager's own money. So if there is any claim on the mutual fund manager your money is ring fenced.

- Similarly client investments in/ belonging to the mutual funds mutual funds must be segregated form the fund manager's own accounts, which are often referred to as "house investments" or "proprietary investments". They are ring fenced and segregated.

- There remains some risk that Stan Chart as custodian holding the funds cash goes bankrupt . But remember for a mutual fund 95%+ is invested in say bonds or equities, so the cash element is very small anyway.

- Fund managers do due diligence on who they select for custodians. They will usually select the strongest banks with the best credit ratings, and good governance. That's why Stan Chart, HSBC, Citibank are often the custodian banks

Nothings ever 100% safe, but there are some very good controls in place including the above. There are also are variety of other controls in place including segregation of duties, compliance functions, external audits, role of the trustee etc etc, but the above are some of the main ones specific to your question.

Cheers

Fletch

Edit: Should add that while commercial banks are usually regulated by BOT, mutual funds are regulated by SEC

http://www.sec.or.th/EN/RaisingFunds/MutualFundOtherProduct/Pages/MutualFundOtherProduct.aspx

Edited May 22, 2014 by fletchsmile