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Published on February 11, 2008

The amendment to the Provident Fund Act effective last month has ushered in a new chapter in the provident-fund management business, allowing investors more options in where, when and how to put their hard-earned salaries.

The changes will result in increased competition among investment-management companies. Provident funds, despite their lower management and administration fees compared to their mutual-fund siblings, have been a source of steady income for fund-management companies with average contracts of two to three years.

A notable change is the option for employees to invest in sub-funds with varying investment styles and risk levels, said Araya Thirakomen, deputy managing director of Tisco Asset Management and deputy chairman of the Association of Investment Management Companies.

This is a boost to the previous "employees'/investors' choice" initiatives by firms such as Tisco, SCB Asset Management and Kasikorn Asset Management.

Instead of relying on a strategy outlined by the companies' fund committees, which comprise representatives of employers and employees, employees can choose between the different funds to invest in. A provident master fund might consist of different sub-funds in equities, short-term bonds or treasury notes, said Kaset Chaiwanpen, KAsset's head of institutional clients development.

Kaset said that such a method would only be feasible for a fund with a size in the billions. For smaller ones, for example Bt100 million, companies also have the choice of pooling recourses to invest in a fund.

On top of the conditional tax deduction, the amendment will allow investors to also receive their retirement money in instalments, while benefiting from continuous returns on their investment.

Such flexibility extends to a grace period of no less than 90 days for employees whose contracts have terminated. This will let them reap the rewards during the transition.

The new law will also allow transfers of investments from the Government Pension Fund to any provident fund.

"We have to adapt to the changing nature of public-sector workers," said Araya.

Although last year's GDP figure has yet to come out, the provident-fund business saw the percentage of its net asset value to the country's GDP rise to 7 per cent last September, according to the latest figures from the Association of Investment Manage-ment Companies.

This is unprecedented in that

the percentage has never surpassed the 5-per-cent ceiling, considering also that provident-fund membership is voluntary, said Araya.

The key to expansion is to encourage more companies to sign up, said Patcharin Techakehakit, senior executive vice president of SCB Asset Management. Now there are only 1.9 million employees from just 8,187 companies out of about 400,000 companies that invest in provident funds. Still, these figures have grown by 5.8 per cent and 9.7 per cent respectively.

Competition has been fierce too among these asset-management firms. Fees have been slashed, and they hunt among a few public enterprises. Last year the industry's net asset value rose by 12 per cent to Bt441 billion.

Ki Nan Tsui

The Nation