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)