21 September 2011

Wealth Protection (Part 2)

by

Dr. Suvarn Valaisathien

www.saverclub.org

All Rights Reserved

In the previous issue, we dealt with the efforts of many people to generate income and accumulate savings to look after themselves and their family and at the time of their death to pass on the estate to the heirs. At this point, it would be interesting to stress that Thailand has no estate and inheritance tax. All successions can be given to the heirs either by will or by blood line free of tax and duty. Nevertheless, this should not be confused with the recording of certain items which are immovable properties such as home, land and condominium. The title deeds must be transferred from the deceased person to the successors. The Land Code states that there shall be transfer fee at 1% of the government price plus stamp duty at 0.1%. The total would be 1.1%. These are fees and not taxes. Further, Thailand requires no probate. With respect to movable items whether auto vehicles, jewelries, furniture, stock and bond, mutual fund or debenture, they can be transferred e to the recipients without any tax and duty as well except for certain securities which are deposited with brokers or Thailand Depository Securities of the Stock Exchange of Thailand, the transfer could be subject to a small transfer and service fee. To enable your family wealth to grow and prosper, in the previous issue, we discussed about investment in the future market which are of high risk and not suitable for those conservative investors. People speculating in the futures market should thoroughly study the risk exposure. From my experience, investment with minimum risk are the following: 1. Bank deposit. As of today until 11th August 2012, the government guarantee all deposits upto Baht 50 million per account. And from that date, the guarantee will drop to only Baht 1 million per account. According to the statistics of banks, more than 90% of the accounts has less than Baht 1 million each and therefore even though the guarantee is Baht 1 million, a majority of depositors finds this level of protection adequate.

Nevertheless, the government may consider extending the guarantee above Baht 1 million per account beyond August 2012. Where you would like to enjoy 100% guarantee of your big bank account, you can put your money with government banks such as Government Saving Bank, Government Housing Bank and Bank for Agriculture and Co-operative which are wholly owned by the state. Leaving your money with these financial institutions is similar to enjoying a full guarantee. 2. Invest in government bonds or debenture guaranteed by Finance Ministry. However, the Ministry has a policy not to guarantee any more debentures and therefore buying government bond is the only alternative. 3. Invest in debentures issued by state enterprises wholly or almost wholly owned by the government or purchase debentures of substantive companies whose stocks are listed on the Stock Exchange. There are strong companies like Siam Cement Group or PTT Public Company Limited or Bangkok Bank where the rating agency assigns premium grade such as AA or higher. Therefore, it would be quite rare for these issuers to go into default. On the other hand, if you invest in lower grade debentures such as A or BBB rating where the yield is relatively higher such as 5-6% per year for a term of 3-5 years, it is not as secure as those with higher rating. History shows that during the financial crisis of 1990 to 1991, debentures of many financial institutions as well as commercial companies went into default, some are permanently closed by the government. Others to seek rehabilitation in Bankruptcy Court. Investors suffered substantially because they could not get their money back and their bonds were virtually cancelled during the rehabilitation process. As a consequence, if you are conservative, then stay with bond and debenture with higher rating. The only downside is that the yield is relatively low such as 3 4% per annum and after deducting the 15% withholding tax on interest, the net return is even less inflation. In the next issue, we will explore other avenue of investment that offer give you relatively higher return with certain degree of safety similar to debt instrument, this will enable certain type of investors such as retirees to enjoy a higher rate of return. Good luck to you all. Dr. Suvarn Valaisathien