February 18, 2013 00:00 By Sorawis Imbumroung
The government should make it easier and faster for investors to access mutual funds because the growth of the funds can help stimulate further economic growth, consumption and investment, according to a study by the National Institute of Development Admi
Asst Professor Wisit Chaisrisawatsuk from the School of Development Economics said last week that if funds grow 1 per cent, gross domestic product would expand by 0.21 per cent, consumption by 0.19 per cent and investment by 0.24 per cent.
However, in South Korea, if funds grow 1 per cent, GDP would increase by 0.25 per cent, consumption by 0.40 per cent and investment by 0.37 per cent.
Clearly, Thailand gets fewer benefits from using funds than South Korea. Thailand did not create economic activities effectively at these levels and its move to change itself was also slow.
The government should develop the financial market to link with the economic sector more concretely and faster.
The government should educate people to understand the roles of mutual funds and risk management. Mutual funds are a source of capital with low-cost operations. Once companies raise capital from the funds, it can spend on their investment plans more effectively. Infrastructure funds are an example, he added.
Based on the school’s macro model, the economy is projected to grow 5.1 per cent in 2013 and 5.6 per cent in 2014, while inflation would rise from 3.1 per cent to 3.7 per cent, Asst Professor Yuthana Sethapramote said.
Nominal GDP is projected to expand 8.2 per cent in 2013 and 9.3 per cent in 2014, while mutual funds would increase 11.2 per cent and 13 per cent. Both equity and bond funds will keep growing during the two years.
Long-term equity funds (LTF) are expected to increase 24.7 per cent in 2013 and 17.2 per cent in 2014. Retirement mutual funds (RMF) are projected to rise 20.5 per cent and 30.8 per cent. General funds, excluding LTFs, would grow 7 per cent and 3 per cent. Apparently, RMFs and LTFs are growing twice as fast as other types of funds.
Equity funds, including LTFs, were growing at one-third or one-fourth the pace of LTFs due to tax benefits. The study found that funds with tax breaks would grow faster than others.
Tax measures in the short term were still needed, but should have a timeframe. The study found that if Thailand wants to follow South Korea’s example by increasing funds from 20 per cent of GDP at present to 38 per cent, nominal GDP growth would average 8 per cent annually, while mutual funds would grow 13 per cent a year. The target would be achieved in 10 years, or 2023.
But if funds achieve 15-per-cent growth a year, it will reach its target in 13 years, or 2026, so the government should encourage mutual fund development, especially equity funds. Income tax exclusion is still essential.