Investment Regulations


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Investment Regulations

Asset management companies play the most crucial role in managing provident fund assets. To ensure proper risk diversification and promote fund members’ confidence, SEC requires that management companies follow rules and regulations in managing the fund assets.

Investment Policies

Types of Investment Assets

Investment Limit

Disclosure of investment information and Actions taken in case investment is not
in accordance with investment regulations

Conflict of Interest Transaction

. Investment Policies

Generally, investment policies could be classified into non-specialized fund and specialised fund as follows:

Investment Policies	Description
1. Equity fund	This policy focuses on investing in equity asset in order to increase the fund size. At least 65% of the net asset value (NAV) has to be invested in the equity asset. The less of them could be invested in deposits or fixed income assets.
2. Fixed income fund	This policy focuses on investing in the secured assets in order to get permanent benefits in form of interest without any intention to increase the fund size. The investment assets are deposits and fixed income assets such as government bonds, treasury bills, certificate of deposits, promissory notes, bill of exchange, debentures.
3. Mixed fund	The investment assets would cover deposits, fixed income assets and equity assets.
3.1 Having equity limitation	It specifies the limitation of equity assets such as 10%, 20%, or 40% of the NAV. However, the equity asset must not exceed 65% of the NAV; otherwise, it will be classified as Equity Fund.
3.2 Free hand	The investment is managed upon the discretion of the fund manager.
4. Specialised fund	The investment doesn't focus on either equity assets or fixed income assets. It has an exclusive investment form such as money market fund, guaranteed fund, capital protected fund, or specific fund.

Types of Investment Assets

Provident funds may invest only in securities or assets as follows:
	Cash deposits or equivalent instruments such as Om Sap Thawisin Savings Cards Deposits (issued by the Bank for Agriculture and Agricultural Cooperatives), Premium Savings Certificates or PSCs (issued by the Government Savings Bank), deposits in commercial banks or banks established by specific law, deposits in Savings Cooperative and the Federation of Savings Cooperatives, and deposits in financial institutions as prescribed by the SEC
	Debt instruments such as bond, negotiable certificate of deposit (NCD), promissory note, bill of exchange, debenture in exclusion of convertible debenture, and bond-warrant
	Equity instruments such as shares and warrants
	Hybrid instruments such as convertible debenture
	Investment unit
	Derivative warrants
	Derivatives
	Structured notes

2
Investment Limit

In order to diversify investment risk, different limits are imposed on different investment assets. Limits are of two kinds which are company limit and product limit. Company limit is imposed on investment in an entity that offers all types of investment assets. Product limit is imposed on a specified type of investment assets.

	Types of Investment Assets	Investment Limit (NAV%)
1.*	Issuance by commercial banks established under specific law: Cash deposits, debt instruments, hybrid instruments, derivative warrants, derivatives, structured notes.	Company limit ≤ 20%
2.	Government instruments: Thai	No limit
	Government instruments: Foreign ; which attain at least the first two ratings.	No limit
	Government instruments: Foreign ; which attain investment grade.	Company limit ≤ 35%
3.*	Issuance by non-governmental entities and non-banks: debt instruments which attain investment grade.	Company limit ≤ 15%
4.*	Equity instruments	Company limit ≤ 15%
	IPO shares
	Foreign equity instruments
5.	Feeder fund (invest in a master fund)	Fund limit ≥ 80%
	To be qualified as a feeder fund, a provident fund assets must be invested in a master fund ≥ 80%.
6.*	Investment units and warrants on investment units	Product limit ≤ 65% In case of investment in specific fund, limit ≤ 10%
7.	Investment units – property fund	Product limit ≤ 15% Fund limit ≤ 15%
8.	Investment units – foreign investment fund	Fund limit ≤ 15%
9.	Investment units and warrants on investment units of a guaranteed fund
	9.1 capital and interest guaranteed	No limit
	9.2 full capital guaranteed	Product limit ≤ 65%
	9.3 partial capital guaranteed	Product limit ≤ 10%
10.	Financial instruments rated under investment grade or junk	Company limit ≤ 5% and Product limit ≤15%
11.	Securities lending	≤ 25%
12.	Reverse repo	Limit is tied upon underlying assets.
13.	Derivatives 13.1 Exchange traded 13.2 OTC	Limit is tied upon counterparty and underlying assets and is regarded as direct investment .
14.**	Issued by employers
	14.1 Employer is a commercial bank	Company limit ≤ 15%
	14.2 Issuer attains investment grade rating	Company limit ≤ 15%
	14.3 Issuer is graded as junk	Company limit ≤ 15%

* A provident fund that has the same investment policy as an index fund could invest in a company for not more than 50%
of NAV.
** Not applicable to pooled fund that composed of related companies for less than 2/3.

Investment in Futures permit only for hedging to reduce risk pertaining to assets invested where underlying assets are securities, SET index, interest rates, exchange rates, credit rating, credit event, crude oil, or commodity.

4
Disclosure of investment information and Actions taken in case investment is not in accordance with investment regulations
          Disclosure of investment information
                    Management company has duty to disclose investment information as follow:
                       1. The amount of money invest in debt instruments, deposits, hybrid instruments, and proportion of investment
                            to NAV.
                       2. Details and credit rating of each individual debt instruments, deposits, or hybrid instruments.
                       3. Maximum proportion to NAV that is planned to invest in financial instruments rated under investment grade
                           or junk. Approval in writing from the fund committee must be attained.
                       4. Disclosure of all the abovementioned information in monthly report and annual report.

          Actions taken in case of disqualified invested assets
               In case invested assets become disqualified assets, management company must dispense such assets within
                    30 days since the date the assets become disqualified except for the cause of proper and necessity with
                    permission from SEC.

          Actions taken in case of non-compliance with investment limit
               1. In case of exercising right issues, management companies must correct investment limit within 30 days
                        since the date posting XR sign.
               2. In case of investment grade assets turn into junk assets, management companies must correct investment
                         limit within 30 days since the notification date.
                    3. In case of incremental assets for the cause of receiving debt payments or other causes besides additional                         investment, management companies could maintain the assets and must report such incidents to fund                         committees within 3 days since the date the incidents occur.

3 Conflict of Interest Transaction (COI)
Some investment transactions may involve with parties in interest which could be fund committees, management companies and affiliates, or related companies. Such transactions are defined as conflict of interest (COI). Explanations to the fund committees and approval in writing from the fund committees must be attained before any COI transactions occur.
	Proprietary trading Affiliated transaction Soft commission Staff dealing
Proprietary trading
In case a management company manages its own portfolio for its own benefits, it must set up a system that ensures COI prevention and attain approval from SEC before investing. In case a management company assign others to manage its portfolio, it must not get involve in any investment decisions. Holding period for each individual asset must not less than 1 year except for deposits, short-term financial instruments with less than 1-year term, and its own investment units holding with necessity. A management company must submit an investment report to the SEC and disclose to the fund committee that it may invest for its own benefits in like assets as well as allowing fund committee to see its portfolio.
Affiliated transaction
Affiliated transaction can be performed under the following conditions 1. Best execution 2. Necessity and benefits 3. At arm’s length The fund committee approval must be attained as is stipulated in contract or before taking any affiliated transaction.
Soft commission
Soft commission can be performed under the following conditions 1. The benefit received must have economical values and provide direct benefits to the fund such as research papers and reviews. 2. Have no intention to attain services more than necessity. 3. Fair allocation of benefits with consideration of the fund investment policy. Management company must specify conditions and criteria for soft commission in management contract and make the notification in writing to the fund committee regarding soft commission received, provider, and reasons for the acceptance of soft commission.
Staff dealing
Management company must provide 1. Efficient staff supervision system to ensure work standard as prescribe by the Association of Investment Management Company pertaining to the control of staff trading transactions. 2. Specification of disciplinary measures in case of violation. 3. Compensations to provident funds for any damages occur as a result of violation.

Main Page Last update : November 23, 2006

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