A peep into the potential of mutual fund investment

A peep into the potential of mutual fund investment

Arif T. Syam, Contributor, Jakarta

Mutual funds are getting more popular among investors these
days their higher returns.

Even though the profit that mutual fund investments can yield
is generally still lower than the returns that can be made from
stock investments, as an investment instrument mutual funds
provide greater security in terms of the risks of losses.

The problem lies in a fund manager's ability to manage
investments. Therefore, it is crucial to choose the right fund
manager.

The recent forgery of mutual fund certificates by Bank Global
has certainly unfavorably affected the investment climate in
Indonesia, particularly as regards mutual funds.

When choosing a fund manager, generally we feel secure if the
company where he or she works is famous and big. However, it is
also necessary to pay serious attention to the fund manager as an
individual.

Start by studying the biodata of a fund manager. Generally,
fund managers' biodata has guaranteed validity.

This biodata will give you the fund manager's track record
over his career. You need a lot of patience and care in studying
this biodata before making your choice.

Aside from studying the written biodata, a prospective
investor must also try to learn about the character of a fund
manager, which will influence his or her decision-making process.

A prospective investor must know whether his fund manager is
emotional, ambitious or calculating. This information can be
gleaned from his fellow fund managers or from the organization to
which he belongs.

Good knowledge of a fund manager's character traits is
necessary to ensure that they will not differ much from ours.
Although in principle a fund manager must serve the investor and
investors can control their own money, it can always happen that
the fund manager and investors will just have clashing
characters.

A personal relationship between an investor and a fund manager
is much better than just business ties. This, of course, does not
necessarily mean that a fund manager must be someone that you
know closely. An ideal fund manager is someone who can make an
investor his friend, or a relative of sorts, rather than just a
business partner.

After finding the ideal fund manager, it is still important
for you to have a good knowledge about the types of mutual funds
available. You must know which type of mutual fund can offer the
biggest return.

There are quite a lot of publications that focus on economic
and business news. Make these publications a source of
information, which can be compared with the opinions of your fund
manager.

Recently, there have been many cases of default on corporate
bonds, particularly concerning Bank Global. However, the default
by Bank Global is still relatively small in terms of value, being
only 0.7 percent of a total issuance of corporate bonds worth Rp
59.8 billion.

Even if this is compared with the default value of other
corporate bonds, the total value does not exceed 5 percent. This
means that investing in bonds is still relatively safe.

In the stock market, financial shares, particularly those of
banks, are gaining in popularity because of the improving debt
ratings of a number of local banks.

Throughout 2004, the financial sector, particularly the
banking sector, showed significant improvement. So in 2005, bank
stocks may be a favorite for mutual fund investments.

In the money market, our rupiah is still stable in the Rp
9,000 range. Nevertheless, political and macroeconomic
developments remain important factors in fluctuations in the
value of the rupiah. When a debt moratorium was offered recently,
for example, the value of the rupiah moved upward.

Regarding mutual funds, however, there are relatively no
unfavorable reports recently, except the case of Bank Global. It
is therefore expected that in 2005 mutual funds will continue to
be a favorite choice for investors.

However, special attention must be given to the government's
plan to issue a regulation on the imposition of taxes on mutual
funds. Indeed, this is a hot topic among fund managers and their
investors.

If this particular regulation is issued, the profits from
mutual fund investments will be "leaner", as happened with bank
deposits on which taxes were imposed a few years back. That's why
bank deposits are now no longer an attractive investment
instrument.

Investors and fund managers must also pay serious attention to
new regulations that the government is planning to issue, such as
the plan to "force" minor banks to merge. If this plan becomes
reality, there will be jolts in the market.

All in all, there are still great investment possibilities in
Indonesia. Most stock market investors are foreign players. The
number of domestic investors in the stock market is still
extremely small compared with the immense size of Indonesia's
population.

Data compiled by securities central custodian PT Kustodian
Sentral Efek Indonesia (KSEI) show that as of the end of 2004
there were only 92,000 securities account holders, quite a small
number compared with a total population of over 200 million
people.

By comparison, Singapore, with a population of only 3.5
million people, boasts one million securities account holders,
while Malaysia, whose population stands at 18 million people, has
some three million domestic investors.

All this means that investment opportunities in Indonesia are
still wide open, in terms of investors or those wishing to make a
career as fund managers.

In this context, mutual funds, which are more flexible and
less risky than securities/stocks, will remain the best choice in
the future. This will be even truer when the political and
security conditions are more conducive.

Improved political and security conditions, plus greater legal
certainty, will attract more and more foreign investors to run
businesses in Indonesia, which will invigorate the country's
investment climate. As a result, the stock, mutual fund and bond
markets will see a lot more activity and yield higher returns. --
The writer is a Jakarta-based freelance financial journalist)