Local mutual funds, relatively more profitable<\/p>\n
Adler Haymans Manurung
\nContributor
\nJakarta<\/p>\n
Last week the government reduced the interest rate on the
\ncentral bank certificate to a one-digit figure: 9.5 percent.
\nCompared to the 12.93 percent rate of interest at the beginning
\nof 2003, this is a sharp decline. This indicates the government's
\ndecision to stimulate the national economy by lowering interest
\nrates so that the real sector can grow further and acquire funds
\nfrom banks.<\/p>\n
The interest rate reduction has affected the general investing
\nclimate, because, almost simultaneously, banks are also reducing
\nthe interest rates on money deposits. Not only businesspeople,
\nbut even housewives, are scratching their heads and worrying
\nabout the lowering of revenue from their deposited funds. The
\nnext question on their minds is where they should invest their
\nmoney. Will mutual funds be just as productive or perhaps more
\neffective?<\/p>\n
Alternative investments that give better returns than
\ndeposits, next to mutual funds, are bonds and property.<\/p>\n
Investing in bonds, however, poses a problem when one needs
\ncash quickly. The "liquidity" of bonds often depends on the
\nnumber of bond purchasers, the amount of bonds issued and the
\nreputation or quality of the bond issuer. These are some of the
\nrisky areas when one invests in bonds. So, to avoid cash flow
\nproblems, one should think twice before investing in bonds.<\/p>\n
Purchasing property may seem attractive initially. This type
\nof investment, however, requires a certain skill and foresight.
\nOne has to find the right piece of property, in the right
\nlocation at a price much lower than market standards. Apart from
\nbeing time consuming, this business is an "art" in itself. Often,
\nit takes a lot of patience to make it pay off.<\/p>\n
For a number of reasons, many investors are now turning to
\nmutual funds as the preferred alternative compared to the various
\nmethods of investment available in the domestic market.<\/p>\n
The first reason is that cash flow is not too problematic,
\nbecause, although not as instantaneous as bank deposits, the
\nliquidity of mutual funds is within seven days after redemption.<\/p>\n
Second, the investor is free from the intricacies of the
\nadministration and analysis of investing.<\/p>\n
The third reason is that mutual funds are comparatively low in
\nrisk, although not as secure as conventional bank deposits. The
\nrisk factor is much reduced with the assistance of an investment
\nmanager who handles one's portfolio and conducts diversifications
\nof investments to reduce the risks even further.<\/p>\n
Reason number four is transparency, meaning as an investor one
\nhas the right to all of the information and developments in one's
\ninvestment. Mutual funds are also audited by registered public
\nauditors twice a year.<\/p>\n
The fifth reason is better return from mutual funds mostly due
\nto the diversified investments by one's investment manager.
\nInvesting some of the funds in bonds is also often recommended as
\nthe return is higher than deposit rates: 13.5 percent annually at
\nthe lowest. The happy news is that these revenues are tax-free
\naccording to government law No. 6\/2002.<\/p>\n
Though all these reasons indicate that currently mutual funds
\nare more profitable and hence the path to take for investments,
\none should always be cautious and work closely with an investment
\nmanager to minimize the risks involved. No investment manager,
\neven those with proven track records, can guarantee a totally
\nrisk-free investment. So keeping in close touch with every single
\neconomic development is advisable.<\/p>\n
Another positive result of investing in mutual funds is that
\none indirectly helps the national economy. In the case of bonds,
\nfor example, the company that issues the bonds acquires more
\ncapital for expansion, which increases production, employment and
\nso forth, all of which turn the wheel of the national economy
\nfaster. Today, even certain regional administrations have issued
\nbonds. Investing in regions with good economic prospects not only
\nenriches you but helps the nation on the whole.<\/p>\n
So, instead of the dwindling return from deposits, why not
\nlook around for some of the country's healthy investments in
\nmutual funds.<\/p>\n
(The writer is director of fund management at PT Nikko
\nSecurities Indonesia)^Y<\/p>",
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