It is thus undeniable that the mutual-fund industry will also be marginalised. In an environment of more intense competition this year, the mutual-fund business may post slower growth of 20-30 per cent this year, against the 34.9 per cent of last year. Key factors expected to affect the growth of the mutual-fund industry this year are summarised in the following:

l Possible leniency on the Bank of Thailand's capital controls against short-term inflows.

So far, the BOT's 30-per-cent rule that has also been applied to investments in unit trusts has dealt a blow to expansion in the mutual-fund business. Amid foreign investors' eroding confidence in the Thai capital market as a result of the government's policies, market capitalisation may be dented, thus affecting the net asset value (NAV) of existing funds, as well as those to be launched in the future. The capital-control measures have affected plans to issue property funds by several asset-management companies and also had a knock-on effect on investor confidence in listed property funds.

l Possible interest-rate reductions at home.

KResearch expects that the BOT's policy rate may be slashed by another 75 basis points this year, which should put pressure on yields in the bond market as well. However, the fact that 3- to 24-month fixed-deposit rates are expected to be cut by 0.75-1 per cent this year may contain the narrowing gap between government-bond yields and deposit rates. At the same time, short-term fixed income funds are likely to be a comparatively safe haven for investors who are familiar with this type of instrument. To respond to this demand, most asset-management companies are thus expected to shift their focus to offering these funds this year. 

l More money being allocated to overseas investments.

KResearch forecasts that more mutual funds aimed at investing overseas will be set up following the remaining government allocations from last year. In addition, there is an indication that the BOT will be more flexible in permitting institutional investors to invest overseas, because of uncertain domestic factors that will encourage asset management companies to offer more foreign investment funds to customers.

Tax-break LTFs (Long Term Equity Funds) will be rushing to set up before the deadline for new LTF registrations on June 30. This leads to the expectation that from now to the middle of the year, asset-management companies will be likely to launch more LTFs before these tax privileges expire.

l New asset-management companies entering the business this year.

It is forecast that the domestic competition in the mutual-fund business will intensify, particularly due to plans to liberate licensing of securities businesses. For this reason, securities companies will try to adjust by diversifying into other income-earning businesses such as setting up their own asset-management companies instead of depending mainly on equity-trading.

l The launch of more funds investing in futures and/or structured notes.

Previously, the SEC was helpful in supporting changes to rules and revising investment proportions to enable mutual funds to invest in futures contracts and structured notes more actively under specific conditions. Moreover, the growth of the Thailand Futures Exchange, which will launch a new product - SET50 Index Options - in the third quarter of this year, will be another positive factor for the launch of new forms of mutual funds. Nine mutual funds have been granted licences to act as fund-managers on futures contracts, and it is projected that the number of new asset-management companies licensed this year will increase.