Provident Fund: The “Easiest” Investment with the “Most” Benefits
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As the year-end approaches, in addition to allocating investment funds for SSF, RMF, and TESG to get tax deductions, planning your Provident Fund investment is also a crucial matter that working individuals should not overlook.
As investing in a Provident Fund offers us all-around benefits, it’s like killing several birds with one stone. In this article, I will summarize the various benefits we get from a Provident Fund in a way that is easy to understand.
- Get Immediate Compounding Returns on Your Investment Date
When investing in various assets, whether it’s stocks, funds, fixed-income, gold, or crypto, we must always consider the “returns and risks.” When returns are high, the risks and volatility are also high.
But there is one unique and very special investment option: investing in a Provident Fund. This is an investment that can generate returns “immediately” on the day we invest and offers “compounding” returns.
This is because every month, we are required to contribute 2-15% of our wages to the Provident Fund, and we will receive an equivalent company contribution of 2-15% (depending on company policy). For example, if we choose to invest 5% of our monthly wage in the Provident Fund and the company also contributes a maximum of 5%, it means our investment will immediately grow from 5% to 10% at the end of the month. In other words, “this investment doubles in value in a single day.” I believe there is no other investment in the world where we can get this kind of matching contribution.
- Promote Savings Discipline
The problem that makes many people’s investments stumble and become inconsistent is “lack of savings discipline.” This will lead to long-term headaches as we approach retirement. We can force ourselves to be disciplined by choosing to save and invest in a provident fund, where by law we can choose to invest 2-15% of our salary.
For those who don’t have many daily expenses, choosing to invest 10-15% in a provident fund is a great idea. It allows your money to grow quickly and become a substantial sum for you after retirement.
On the other hand, if you have high daily expenses, you should reduce your investment percentage. You should first consider your essential living costs, and then decide on your investment allocation. As your living expenses decrease, you can gradually increase your investment percentage. You must not forget to have a smooth and happy work life, not just think about your retirement life. “Work-Save-Life Balance” is the most important thing.
- Create Long-Term Sustainable Returns by Optimizing Your Investment Allocation
Provident funds currently offer us a variety of investment options, including fixed-income, Thai stocks, and foreign stocks. Each asset management company that invests our money has good funds for us to choose from. Our job is to “select an investment plan that is appropriate for our age.”
If you are still young (under 35), it is quite appropriate to embrace risk by investing in assets that can generate good long-term returns, such as foreign equity funds, global equity funds, or US equity funds. These assets can be expected to yield returns of 10% per year for a long-term investment of 5-10 years.
And if we are getting closer to retirement age (45 years or older), our limitation is a “shorter investment horizon.” Therefore, investing primarily in equity funds may not be suitable, as it could give us a migraine when the stock market experiences a sharp downturn. At this age, we should adjust most or all of our investment to a safe fixed-income fund. Even though the expected returns may be lower, at around 2% per year, we can be confident that our investment will not be in the negative.
- Can be used for tax deductions.
The final benefit, in addition to the various returns from the investment, is that the provident fund can also be used for tax deductions. The “contributions” we make to the fund each year can be used for a tax deduction based on the actual amount paid, up to a maximum of “15%” of our income. When combined with other types of retirement savings such as RMF, SSF, or pension insurance premiums, the total amount “must not exceed 500,000 Baht.” This tax-deductible amount is subtracted from your total annual income, which results in a lower net income and, consequently, a lower tax payment.
From all that has been mentioned, the provident fund is considered a welfare benefit and a type of investment that provides all-around advantages, including “returns from company contributions that we receive immediately on the day of investment,” “returns from investing in various assets,” and even the ability to “use it for tax deductions.” Most importantly, it “builds continuous savings discipline.” It is truly an investment option where you “do little” but get a lot in return.
