Determinants of Growth for Thai Mutual Fund Industry

Rapid Growth and Emerging Challenges in the Thai Mutual Funds Industry

Between 2006 and 2010, the Thai mutual funds industry has seen substantial growth, becoming a significant savings and investment avenue. The assets under management increased to Bt1.704 trillion, accounting for 37% of Thailand’s total household bank savings. Notably, the share of equity funds increased from 10% to 15% of these assets, indicating a diversifying investment landscape.

The industry’s expansion has been largely driven by fixed income funds, highlighting their vital role in shaping investment trends. With the impending financial liberalization in 2015, understanding the industry’s nature, including its products and benefits, becomes crucial for stakeholders. Three factors have been key to mutual funds growth: distribution channels, reputation of parent companies, and administrative costs. Companies excelling in these areas, particularly those with efficient distribution networks and cost management, are poised for higher growth, even if they charge higher fees.

Despite the growth, the industry faces challenges like limited product diversification and slow innovation, particularly if foreign-owned companies lose their competitive edge. Additionally, a focus on short-term, tax-advantaged funds may not meet the long-term investment needs of Thailand’s aging population.
As the industry navigates these challenges, it is essential for market stakeholders to consider strategies that enhance the mutual fund sector, aligning it with the evolving needs of Thai investors.

Table 1: Proportion of Thai work force, In-the-System, to total work force

Working Force36,257,30536,872,66537,549,99438,251,602
Source : National Statistical Office of Thailand

Table 2: Proportion of Asset Under Management (AUM) to household deposit

Retail Savings4,206,3164,118,8744,494,2254,434,6084,593,095
Source : Bank of Thailand and Association of Investment Management Companies

Navigating the Future of Thai Mutual Funds Amidst Demographic Shifts and Workforce Dynamics

The Thai mutual funds industry has grown remarkably from 2006 to 2010, in an environment where traditional savings places like bank deposits are becoming less favorable due to negative real interest rates. This period saw the industry’s assets under management (AUM) climb to Bt1.704 trillion, capturing a significant 37% of household bank savings by 2010, as Table 2 demonstrates.

However, the aging demographic poses a new challenge. With life expectancies rising and the elderly population projected to increase sharply, there’s an urgent need for savings and investment vehicles that can provide long-term returns suitable for retirement lifestyles. This is particularly pressing in Thailand, where the proportion of the elderly population is expected to reach 21.6%.

The workforce structure, as shown in Table 1, indicates that only about 25% of Thai workers are “in-the-system” employees. This situation could make it difficult for many people to plan and save for their future over the long term. Since most workers do not have access to usual retirement plans, like provident or pension funds, they are turning to mutual funds and other ways to manage their savings. These alternatives offer different kinds of investment options, from the safer money market funds to more complex choices that include things like bonds and stocks.

The study at hand explores the determinants behind the compound annual growth rate (CAGR) of 16.97% in the mutual fund sector, which is expected to maintain double-digit growth rates into 2030. It addresses a gap in research on emerging mutual funds by focusing on the asset management corporation level, offering insights into the competitive landscape and growth drivers within Thailand’s capital market.

Thailand’s Asset Management Evolution: Growth Trends and Dominant Players

The Thai Asset Management industry, established in 1975 through a joint initiative by the Thai government and the International Finance Corporation, has seen substantial growth. From just 8 Asset Management Corporations (AMCs) in 1992, the number has grown to 21 by 2010, paralleled by an increase in mutual funds from 37 to 1,429. Dominated by fixed income and equity funds, the industry’s asset under management surged from 640 billion Baht in 2006 to 1.23 trillion Baht in 2010 for fixed income and from 99 billion Baht to 261 billion Baht for equity funds.

Despite a stable proportion of equity funds at around 11% to 15% of total assets, the sector’s value growth is attributed to both market valuation effects and new capital inflows. Tax incentives have played a crucial role in this growth, particularly for Long Term Equity Funds (LTF) and Retirement Mutual Funds (RMF), which saw their share in equity AUM jump from 30% to 55% in four years.

The fixed income segment, on the other hand, has been propelled by Money Market Funds (MMF) and Foreign Fixed Income Funds (FIF), with their increasing popularity linked to low bank deposit rates and more relaxed foreign exchange policies.

Large AMCs, especially those associated with Thai commercial banks, command the largest market shares due to their robust distribution channels and comprehensive financial services. The dominance of bank-related AMCs is evident in both fixed income and equity funds, with their market shares in LTF and RMF-equity funds growing significantly from 2006 to 2010.

This analysis concludes that mutual fund growth in Thailand is not just about fund performance; distribution networks, the reputation of the parent company, and effective investor relations are also key. Hence, AMCs with strong ties to nationwide banking networks are well-positioned to capitalize on the market, using cross-selling strategies to expand their reach in both fixed income and equity funds.

Decoding the Growth of Thai Mutual Funds: Data Insights and Key Factors

Thai mutual funds have seen a remarkable rise from 2006 to 2010. This study delves into the factors fueling this growth, using data from the Securities and Exchange Commission of Thailand and other finance-related websites.

The focus is on how different types of asset management companies (AMCs) fare in the Thai market. The main types are those linked to Thai banks and those that aren’t. Data from 2006 to 2010 shows that bank-associated AMCs hold the largest market share. This is due to their effective distribution channels and established reputation, which helps attract new investments.

The study uses a fixed effect model to analyze the data, which looks at how certain factors like management fees and the size of the fund affect growth. It turns out that the key to mutual fund growth in Thailand isn’t just about the fees charged by the funds for managing investments. It’s also about the efficiency of the AMC, their ability to keep operational costs low, and their connection to Thai banks.

In short, Thai mutual funds grow best when they keep costs low and have strong backing, especially from banks. The study suggests that for AMCs, being efficient and well-connected is more important than the size of the fund when it comes to growth.

A Summary of the Thailand’s Mutual Funds Industry

•  Thai mutual funds industry experienced a CAGR of 16.97% from 2006 to 2010.
•  Fixed income funds were key to this growth, making up about 72% of the total assets under management in 2010.
•  Money Market Funds (MMF), a type of deposit substitute product, held the largest share within fixed income funds.
•  Equity mutual fund growth was largely fueled by Long Term Equity Funds (LTF) and Retirement Mutual Funds (RMF), driven by tax incentives.
•  Mutual fund growth determinants include the distribution network, parent company reputation, and administrative expenses.
•  Asset management companies (AMCs) with effective distribution channels and services, especially those linked to bank networks, have greater growth potential and can gain more market share.
•  Challenges for the Thai mutual fund industry include limited product diversity, slow development, and the risk of foreign-owned AMCs losing competitiveness or exiting the market.
•  The aging Thai society presents a challenge, as current mutual fund products are focused on short-term gains, which may not provide adequate retirement savings.