I want to invest for a short period of time , but I don’t dare invest in stocks or mutual funds because they seem difficult to understand and I’m afraid of too much risk. So I want to look for an investment that I don’t have to worry about too much. I want to get a return higher than the interest on deposits, which are getting lower and lower. Are there any other options? This is an interesting question from many fans who want their money saved to get a higher return, but with low risk.
Because many people are starting to be unable to accept the interest rate of deposits. The more they deposit, the lower the return. But if they want to withdraw the money to invest in other things, they are worried because they personally do not like anything that is very risky. If it is like this, what investment options do we have?
“Term Fund is another interesting investment for those who want to invest for a short period of time.”
Especially those who want higher returns than fixed deposits but with less risk than investing in stocks.
Term Fund is a type of debt mutual fund with a clear project duration. Investors can buy and sell only during the specified period.
“Why do Term Funds provide better returns than fixed deposits?”
Because the investment policy of the Term Fund is that 80 percent of the fund’s value will be invested in debt instruments, both domestic and international.
The fund will focus on managing the fund to yield higher returns than fixed deposits. Most of the debt instruments that this fund invests in are domestic and foreign government bonds, corporate bonds, fixed deposits from domestic and foreign banks, etc.
“Why are Term Funds different from fixed deposits?”
Redemption : For fixed deposits, if we really need the money, we can withdraw it at the bank branch, but we may not receive interest or receive less than what they have specified. For Term Funds, we cannot redeem or sell it before the maturity date. We must wait until the investment matures.
The Term Fund that we hold will be automatically sold back when it reaches maturity. Most of the principal and returns will be transferred to the liquid short-term debt funds of the respective asset management companies (depending on the conditions set by the respective asset management companies).
Risk and possibility of loss : In the case of fixed deposits, there is no risk that the value of the money will decrease, except if the bank ceases its operations or its license is revoked, which is quite unlikely to happen. And even if it does happen, the deposit is still protected by the Deposit Protection Agency according to the “protection limit”, which is currently 5 million baht per bank (11 Aug 2019 – 10 Aug 2020) and will gradually decrease to 1 million baht per bank after 11 Aug 2020.
For Term Funds, there are profits and losses that can occur every business day. If the debt instruments that the fund has invested in default on their debt, it will result in losses for the fund. However, Term Funds usually have a mechanism for selecting the debt instruments they invest in (e.g. selecting debt instruments with a high credit rating (investment grade)) to control and prevent the risk of default on this part.
Regarding returns :
In the case of fixed deposits, you will receive a fixed interest rate as announced by the bank, which we will know from the day we open the deposit account. However, the deposit interest rate is usually lower than the estimated return of Term Fund mutual funds with a similar period.
For Term Funds, returns will come in the form of the difference in the fund value that has increased from investing in the period according to the term fund’s life. The returns will be estimated from the beginning of the investment. However, for the most part, the actual returns are not much different from the estimates.
“What type of investors are Term Funds suitable for?”
Have idle money (Term Fund is suitable for those who have idle money that can be invested for a period of 3 months, 6 months or 1 year)
I can accept some risk because I want an interest rate that is not less than that of fixed deposits.
It is considered another investment product that gives us a short-term investment option with low risk and also gives better returns than fixed deposits.
Even though the risk is low, there is still risk.
Let’s take a look at the main risks of term funds.
- No early redemption (No exit)
- Credit risk is the risk that the issuer of the debt instrument in which the Term Fund invests may have problems and be unable to repay the debt, which will affect the value of the Term Fund.
- Term fund concentration risk (Concentration risk) occurs when the fund invests in a large amount in one place. Concentration may be investing in securities of a single issuer, a single industry, or a single country. If a crisis occurs with the issuer, industry group, or country in which the fund invests, it will have a significant impact on the fund.
And if the Term Fund invests abroad, there will be risks from that country (Country risk), such as economy, politics, exchange rates, etc.
Therefore, every time you invest, you should read the prospectus in detail. Go inside and look at what they are investing in, what are the returns and risks involved, whether there is a concentration of investment, and check your entire portfolio to see if there is a diversification of investment risks. You should not put all your eggs in one basket, because if you drop it, all the eggs in the basket will break.
Study the conditions carefully before making a decision, or you can visit the SEC website > www.sec.or.th to find more information.บไซต์ของ ก.ล.ต.> www.sec.or.th เพื่อหาข้อมูลเพิ่มเติมก็ได้เช่นกัน
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