Investment restriction
Types of provident fund
Diverse investment policy can be divided into three categories as follows:
(a) Conservative fund is appropriate for employees who look for stable return and security of principal, not the growth of the fund. The fund is normally invested in government bonds, treasury bills, certificate of deposit issued by commercial banks, bank deposit and debt instruments guaranteed by the Ministry of Finance or rated by the credit rating agency prescribed by the Office of the SEC. Moreover, the company limit is more rigid than other investment policies.
(b) Standardized fund includes 10 types of investment policies which are similar to mutual fund. For example, there are equity fund, fixed-income fund, money market fund, balanced fund, sector fund, etc. However, risk varies from low to high depending on investment policy.
(c) Specific investment policy, determined by the committee of the fund, is the investment policy other than the standard policy. Diversification can be lesser than that of standardized fund, and therefore, may have greater or lesser risk.
Type of securities
In managing a provident fund, management company is allowed to invest only in securities or assets as follows:
(a) Equity Instruments:
1. share
2. investment units or warrant certificate representing the rights to purchase investment units of equity mutual fund or other mutual funds with investment policy in equity instruments
3. certificate representing the rights to purchase shares
4. transferable subscription right
5. non-voting depositary receipt (NVDR)
6. securities lending
7. other securities or assets as specified by the office of the SEC as equity instruments.
(b) Debt instruments
1. bond or treasurt bill
2. certificate of deposit
3. promissory note
4. bill of exchange
5. debenture in exclusion of convertible debenture
6. certificate representing the rights to purchase debenture
7. investment unit or certificate representing the rightrs to purchase investment units of fixed-income fund or other mutual funds which policy are invested in debt instruments
8. securities lendind
9. repurchase agreement
10. other securities or assets as specified by the office of the SEC as debt instruments
(c) Cash deposits
1. deposit in commercial banks or banks established by specific law
2. deposit in Saving Cooperative and Saving Cooperatives Federation
3. deposit in financial institutions according to the law governing debt’s interest of financial institutions as prescribed by the SEC.
(d) Hybrid Instruments:
1. convertible debenture
2. other securities or assets as specified by the SEC as hybrid instrument.
(e) Derivative warrant
(f) Other securities or assets as specified by the SEC.
Investment Limitations
As mentioned above, the employee’s choice allows individual employee to choose his own type of investment policy. However, there are investment limitations as follows:
(a) Conservative Fund – investment in securities or assets having no assurance on principal and interest from the Ministry of Finance is limited to 10% of NAV of the fund. In the case of investment in securities and cash deposits with commercial bank or bank established by specific law, or certificate of deposits issued by commercial banks or finance companies, the limit is extended to 15% of NAV.
(b) Standardized Fund – the investment limits in securities or asset of each company (company limit) are as followed:
- company limit of investment grade securities or assets : not exceeding 15% of NAV
- company limit of investment in securities or assets issued by commercial bank, bank established by specific law, finance company or Industrial Finance Corporation of Thailand (IFCT) : not exceeding 20% of NAV
- total limit of non-investment grade securities or assets : not exceeding 15% of NAV
- company limit of non-investment grade securities or assets : not exceeding 5% of NAV
- investment limit in different types of mutual fund
- general mutual fund: not exceeding 65% of NAV
- specific mutual fund: not exceeding 10% of NAV
- property fund / property fund for resolving financial institution problem / mutual fund for resolving financial institution problem / property and loan fund : not exceeding 5% of NAV and total limit 15% of NAV
- guarantee fund
- capital and return guaranteed up to 100% of NAV
- capital guaranteed not more than 65% of NAV
- partial capital guaranteed up to 10% of NAV
(c) Specific fund – investment limitation is set by the Committee of the Fund.
However, investment restriction in securities or assets of employer and its affiliated person, not exceeding 15% of NAV, is applied to all types of funds to prevent conflict of interest situations.
Measures for Preventing a Potential Conflict of Interest:
Investment in securities or assets, which may cause any conflict of interest, is prohibited unless getting a prior approval from the customer (committee of the fund).
Securities and assets which may cause conflict of interest are as follows:
(a) Securities or assets issued, accepted, avalled, endorsed with recourse, insured or deposited by the management company or the affiliated company.
(b) Investment units or warrants for investment units of a mutual fund managed by management company.
(c) Securities or assets of a company for which the management company has been the financial advisor, underwriter, or selling agent for the sale.
(d) Securities or assets issued, accepted, avalled, or endorsed with recourse by the employer and its affiliated persons.