Should LTF funds be continued or let go?
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For many working-age investors, you likely have LTF (Long-Term Equity Fund) or long-term mutual funds in your portfolio, as they were extremely popular tax-deductible funds in the past. They provided a double benefit to investors: the opportunity to generate returns from investing in Thai stocks and the returns from tax deductions.
However, after claiming the tax deduction, many of you likely face a similar problem: you’ve held the LTF until maturity but are still at a loss. The most common question when an LTF reaches its 7-year maturity is: “What should I do with my LTF now?”
Initially, we recommend that you check if your LTF is “actually in the red” by including other benefits in the calculation, such as:
- Dividends: Many LTF funds in Thailand have a policy of paying dividends along the way. Therefore, you should first check if your LTF fund pays dividends. If it does, find out the total amount of dividends you have received since you started investing.
- Tax deduction benefit received in the investment year: Suppose we used the full deduction limit of 500,000 Baht. We would receive a full tax deduction. If our tax bracket is 20% but the fund is currently down by -30%, after offsetting, the loss would be reduced to just 10%. And if we have received a total of 15% in dividends along the way, we would actually have a 5% profit.
So, before we open our portfolios and are shocked by the losses, we should first consider the other benefits. I believe this can help ease the pain and make it easier for us to let go of our LTFs.
Next, the decision we have to make is what to do with this LTF lump sum. Everyone will have two options for managing their LTF:
- Hold on to it and wait to sell for a profit during the recovery of the Thai stock market.
For those who choose this path, it is recommended that you check whether your LTF fund has performed well compared to market returns or other LTF funds. If it hasn’t, you should switch to a new fund. Even though the LTF fund has reached maturity, the fund manager will continue to manage it as before, and you can still switch to other LTF funds as you could previously.
- Move to other funds with better expected returns.
Mutual fund investment options are now more diverse for investors than in the past. There are options for us to invest in every type of asset, and various asset management companies have launched Feeder Funds that invest in a variety of high-quality foreign funds. They are sold as both ordinary funds and RMF tax-deductible funds. For those who still have to pay taxes, it is advisable to continue investing in RMF funds, as you will get the additional benefit of a tax deduction.
Choose a long-term investment with tax-deductible funds that have a policy of “investing in foreign stock markets.” This is because foreign stocks tend to generate superior returns to Thai stocks in the long term, a trend that has become more evident over the past 10 years.
| 10-Year Historical Returns | Average Annual Return | Maximum Loss Over the Past 10 Years | |
| US Stock Market (S&P500) | 196% | 19.6% | -34% |
| European Stock Market (STOXX600) | 46% | 4.6% | -35% |
| Indian Stock Market (NIFTY50) | 171% | 17.1% | -38% |
| Japanese Stock Market (NIKKEI225) | 119% | 11.9% | -30% |
| Vietnamese Stock Market (VNINDEX) | 120% | 12.0% | -50% |
| Thai Stock Market (SET INDEX) | -20.1% | -2.1% | -35% |
It can be clearly seen that investing in foreign markets provides better returns than investing in the Thai stock market in the long run.
During the past 10 years, if we had invested solely in Thai stocks without making any changes, we would have incurred a loss of approximately -20%, which is similar to the losses most investors have experienced with their LTF funds.
During the past 10 years, if we had invested solely in Thai stocks without making any changes, we would have incurred a loss of approximately -20%, which is similar to the losses most investors have experienced with their LTF funds.
Upon considering the future direction of the Thai stock market, it is quite difficult for it to generate better returns than foreign markets. The fundamental reason is that the Thai stock market is primarily a “value play,” focusing on stocks that benefit from domestic growth. As many are aware, Thailand’s economic growth in the near term remains quite volatile. Moreover, the Thai market lacks a strong presence of technology and innovation stocks that can capitalize on the global AI trend. This makes it challenging for foreign capital to flow in and support the Thai stock market going forward.
For those who remain confident in the Thai stock market, continuing to hold LTF funds is a viable option. However, it’s crucial to select funds with strong past performance.
On the other hand, investors looking for other opportunities have various options for diversifying their portfolios. These include foreign equity funds that invest in markets like the U.S. or Europe, or sector-specific funds in promising industries like Technology and Healthcare. These alternative investments have all delivered better returns than the Thai stock market in recent years.
