5.3 Investment choices – Mutual Funds

Mutual funds is an investment project which raising funds from various investors together as a great investment pieces that are then registered as a legal entity. Then the raised capitals are used to invest in the assets such as real estate or property according to the investment policies in a prospectus offering to investors. Every investor will receive “Unit Trust” as the evidence to the ownership of the money they have invested. An Asset Management company is the establishment and management functions to return with the average rate to each investor in proportion to the investment of the mutual fund.
1. Common Stocks (Ordinary shares)
It is an equity that displays the business ownership. When the businesses profit from operations, the ordinary shareholders will receive dividends in the rate provided by the general shareholders meeting. By calculating the ratio of shares number, the dividends may be more or less depending on the profit from yearly operations of the business.
2. Preferred Stock
It is an equity that displays the business ownership registered clearly on the priority and can not be reversed when businesses profit from operations. Preferred shareholders will receive dividends at the fixed rate; this may be more or less than ordinary shareholders. If the business is to stop the operations and liquidation by selling assets, preferred shareholders will receive the funds before the ordinary shareholders.
3. Stock Warrants
It is a join venture issues to investors with the right to purchase newly issued shares by the price of that period. The investors will have the right to own the business only when they bought its shares.
4. Investment unit in equity mutual funds.
It is entitled to ownership units of mutual funds with the investment policy focuses on equity. Investors will have the ownership right of the invested businesses according to the average rate among all investors in mutual funds.
5. Stock Options & Futures
It is a mutual agreement that the investors agreed to purchase or sell shares with each others at the price, number, and within the specified period.
Debt instruments display the indebtedness or loan agreements issued by company to general investors with the agreement to payback the money and interest on schedules. In other words, it is an instrument that shows “Creditors of the business”. Typically, investing in debt instruments will have less risk than investing in equities. Types of debt instruments are:
1. Government debt instruments
* Government bond
* State-owned enterprise bond
* Bank of Thailand
* Bond funds for rehabilitation and development of financial institutions.
* Treasury bill
* Government debt with minimal risk in the ability to repay.
But the government bond yield is low and most are long-life investments to burden the government management and debt management. Except the treasury that the government issues short-term loans (up to 180 days) to absorb excess liquidity in money market, and to maintain interest rates.
2. Corporate debts are
* Debenture: the nature and status of the property as a creditor.
* Secured debt: guaranteed by a third party (Most are parent or financial institutions) or placing the securities as collateral for repayment. The investor has the right creditor over other creditors.
* Non-secured debt: no guarantee and no collateral for repayment. The investor has the right creditor less than the secured debt.
* Senior debt: the investor has the right of the creditor equal with other creditors, but less than secured debt.
* Subordinated debt: the investor has the right of the creditor less than all other creditors, and was received repayment at the last.

Bill of exchange
It is the short-term financial instrument that one person instructs another person to pay the amount specified in the bill for another person in the date on the bill. The bill can be traded, transferred in the money market. Often there is a bank or financial institution guarantees or representations, or endorse without any conditional.

Promissory note
It is the short-term financial instrument issued by one person contracts with another person that the specified funds will be paid with interest to the date in the promissory note. Mostly the notes are non-negotiable and it displays a message on the coupon, if not listed above, and the notes are guaranteed by a bank or financial institution or endorsed, it can be traded in the money market.
Negotiable Certificate of Deposit
It is an instrument that displays the bank deposit and it is transferable in the secondary market. Considering the ability to repay the private debt has more risk than the government debt, but private debt yield higher and there are short-term, medium-term and long-term choices.

Returns and risks of investing in mutual funds
* Mutual funds do not guarantee the returns that the investors will receive (Unless the fund is insured). Investors may receive compensation or any loss from sold units.
* When the investment earnings. Unit holders will receive a share of profits as a dividend (in the case of the mutual fund has such policy) and net asset value per unit increase, the investors will receive capital gain on the investor redemption.
* The risk of each fund type is similar to instruments or securities investment funds such as mutual equity instrument will have the same risk as equity instrument. Mutual debt instrument will have the same risk as debt instrument, etc.
Mutual fund separates entity from the company benefits management that the funds received with except from taxation such as mutual funds are invested in equity dividend and/or surplus do not have to pay taxes. mutual funds are invested in debt and interest rate discounts as profit and/or surplus do not have to pay taxes. The unit holders of the fund upon receipt of dividends or profits more than NAV, tax burden will be for individuals and entities in a manner similar to the tax burden on investment in equities as mentioned above in all respects, except the case that the individual investors chose to dividends received from mutual funds to calculate the total money to pay taxes. The investors can not credit to tax dividends.