Poor returns provoke retreat from term funds

Term funds are losing sheen, with 300 billion baht being cashed out this year after their returns have fallen close to deposit rates.

Of the total withdrawn, 200 billion is expected to be put into foreign investment funds (FIFs) that focus on equities, while 100 billion will be shifted to local money market funds, SCB Asset Management president Smith Banomyong said.

Around 700 billion baht remains parked in term funds, which invest in government bonds, Treasury bills, debentures and deposits both at home and abroad. Asset value of term funds hit a record high of 1 trillion baht last year.

After two cuts this year, the Bank of Thailand’s policy rate stands at 1.5%. Most central banks have jumped on the ratecutting bandwagon to ward off downside risks to growth.

“Term funds are not interesting now because they yield returns of a mere 1-2%, while some local banks offer similar returns for fixed deposits. Moreover, greater foreign exchange risk is also dimming investors’ interest in term funds,” said Teeranat Rujimethapass, managing director of Tisco Asset Management.

Even though interest rates are at rock bottom, fixed income funds remain more popular than other mutual funds.

Fund managers are now keen on launching FIFs that invest i n equities, mostly through trigger funds, Mr Teeranat said.

Fund managers will explore highpotential areas and timing for the launch of FIFs, he said, adding that the range of returns had narrowed from last year due to higher market volatility.

Trigger funds that invest in overseas equities offer average returns of 5-6%.

Voravan Tarapoom, chairman of Bualuang Asset Management, said mutual funds in the future would be structured to suit particular groups of investors such as teachers or nurses.