Exchange Traded Fund (ETF) is an open-ended fund with an investment policy to achieve investment return equal to a particular reference index, e.g. SET50 Index or SET Index. ETF is managed by a mutual fund management company and the investors may trade ETF units similar to other mutual fund units.
The first ETF in Thailand was established as the SET index fund under the name of “ThaiDEX SET50 ETF”, which is an open-ended fund. ThaiDEX SET50 ETF was listed on the Stock Exchange of Thailand (SET) in the unit trust group with the symbol “TDEX”. TDEX commenced its trading on the SET on 6 September 2007. As at 6 September 2007, TDEX was worth Baht 5,000 million, comprising 880.28 million units with a par value of Baht 5.68 each.
Investment policy of TDEX
TDEX has a passive investment policy. It has no policy to invest offshore. TDEX will invest at least 65 per cent of its net asset value in equities, which are mainly the shares constituting the SET 50 Index including shares which included in the SET 50 Index or will potentially be included in the SET 50 Index. The remainder of its investments will be in debt instruments, derivatives or cash deposits with the intention to achieve the same return as the investment in shares in the SET 50 Index.
Trading of and Investment in TDEX units
TDEX units as listed securities can be traded in the SET through brokers, similar to trading listed shares by during the SET’s trading hours and according to the rules and regulations of the SET.
The trading price of TDEX units will be a bid-and-offer price determined by demand and supply in the SET. The trading price of TDEX units will also be subject to a maximum (being 30 per cent above the previous days’ closing price) and a minimum (being 30 per cent below the previous day’s closing price). During SET trading hours, TDEX will provide an indicatives value of its assets which can be used as a reference by investors in order to set a sale and purchase of TDEX units and the net asset value will be provided at the end of each business day. The procedure for short-selling as well as clearing and settlement which apply to the trade of listed shares will apply to the trade of TDEX units.
Investment in TDEX are exempt from the restriction on investors holding more than one-third of the total number of investment units in a mutual fund. There is no limit on foreign investment in TDEX units.
Fee for trading TDEX units
Trading TDEX units will be subject to a trade commission of 0.1 per cent of the value of TDEX units traded (excluding VAT, specific tax or other tax) and subject to similar taxes incurred in the trade of listed shares in the SET.
Returns on the Investment in TDEX
Returns on the investment in TDEX will be in the form of capital gain and dividend similar to investment in listed shares in the SET. TDEX has a policy to pay dividends to investors not exceeding four times a year at the rate which is not more than 100 per cent of the accumulated profit or net profit as the management company deems appropriate.
Termination of TDEX
TDEX will be terminated if (i) the total net asset value of TDEX is less than Baht 50 million for 5 consecutive business days, (ii) the total net asset value of TDEX is less than Baht 50 million on any business day and the management company decides to terminate TDEX, (iii) there are redemption orders which result in the total net asset value of less than Baht 30 million on any business day, (iv) the number of unit holders is less than 35, or (v) the management company receives a resolution from the unit holders representing more than 50 per cent of total number of TDEX units to terminate TDEX. In addition, the SEC may order the management company to terminate TDEX in certain circumstances, for example, if the management company causes material damage to TDEX.
An investment in TDEX units is treated as an investment in equity in the SET which can be exempted from Unremunerated Reserve Requirement (30 per cent reserve requirement) if the investment funds are deposited in the Non-resident Baht Account for Securities (SNS). The criteria and conditions to be met in respect of an SNS will also apply to the investment funds in TDEX.