New law gives legal basis for mutual fund industry<\/p>\n
JAKARTA (JP): The new capital market law provides a strong
\nlegal foundation for the development of a mutual fund industry in
\nIndonesia, says Minister of Finance Mar'ie Muhammad.<\/p>\n
Mar'ie said yesterday that the new capital market law, which
\nwill become effective in January, does not only stipulate
\nguidelines for the operation of mutual fund companies but also
\nrulings related to the protection of investors.<\/p>\n
In his keynote address at a one-day conference on a mutual
\nfund industry, the minister said that the development of the
\nmutual fund industry is one important strategy in expanding the
\ncountry's capital market.<\/p>\n
Another key factor, according to the minister, is to increase
\nconfidence in capital market institutions.<\/p>\n
The importance of mutual funds for the development of the
\ndomestic capital market is that this form of investment allows
\nsmall investors to obtain the benefits of a professionally
\nmanaged and diversified portfolio of securities at reasonable
\ncosts, he said.<\/p>\n
"By offering savers a convenient and less risky way to
\nparticipate in the capital market, a broader participation in the
\nmarket is encouraged," the minister said in his written speech,
\nwhich was read by Chairman of the Capital Market Supervisory
\nAgency (Bapepam) I Putu Gede Ary Suta.<\/p>\n
Speakers at the conference, jointly sponsored by Bapepam and
\nHong Kong-based Merrill Lynch Asset Management, included Bank
\nIndonesia Governor J. Soedradjad Djiwandono and a number of
\nMerrill Lynch executives.<\/p>\n
The newly open-end mutual funds authorized by the capital
\nmarket law are an investment product designed for ordinary
\npeople.<\/p>\n
Bapepam should, therefore, step up its supervision to protect
\nsmall investors, he said.<\/p>\n
"When small investors are defrauded by unscrupulous securities
\nsales persons, the pain and suffering caused to individuals is
\nmuch greater than an equivalent loss to a sophisticated financial
\ninstitution," he said.<\/p>\n
The new capital market law imposes severe penalties for
\nsecurities fraud, mostly related to the marketing process, he
\nsaid, citing that a sales person who defrauds an investor when
\nselling a mutual fund product could face criminal sanctions of up
\nto 10 years in jail.<\/p>\n
"This might seem excessive, until we remember that defrauding
\na small investor may mean taking away a lifetime of savings," he
\nsaid.<\/p>\n
Investing through mutual funds will benefit individual savers
\nbecause they will consequently acquire access to capital market
\ninvestment instruments, which provide better matching of long-
\nterm liabilities, such as retirement and education, with long-
\nterm investment assets such as stocks and bonds.<\/p>\n
Soedradjad said that the establishment of a mutual fund
\nindustry will provide an alternative investment for individual
\ninvestors besides the traditional forms of investment such as
\nbank deposits, gold or property.<\/p>\n
He said that the emergence of the industry would complement
\nthe banking system rather than substitute it.<\/p>\n
"In a way, it would appear that the development of this
\nindustry will divert some potential bank customers into the
\ncapital market," he said.<\/p>\n
However, as is the case in other countries, the pool of money
\nbeing received by the issuers of shares will in one way or
\nanother feed back to the banking system, he said. (hen)<\/p>",
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