Capital market watchdog moves to calm mutual fund industry
Capital market watchdog moves to calm mutual fund industry
The Jakarta Post, Jakarta
Chairman of the Capital Market Supervisory Agency (Bapepam)
Herwidyatmo denied reports there had been massive redemption in
the country's mutual fund industry.
He said on Friday that redemption by investors during the past
few weeks reached only around Rp 4 trillion to Rp 5 trillion
(US$591.72 million)
He was responding to earlier reports saying that plans by the
capital market watchdog to tighten up regulation of the booming
local mutual fund industry had frightened investors, and caused a
massive redemption of around Rp 30 trillion during the past few
weeks.
Under the Bapepam plan, fund managers will be required to mark
the underlying assets of mutual funds to market value,
particularly as many funds have overstated the value of their
bond holdings.
Mutual funds in this country have invested heavily in
government bonds, given declining interest rates and a rally in
the local bond market. In fact, around half the government bonds
available for investors are being taken up by mutual funds.
Reports said that the plan had created jitters among
investors, fearing that gains from the funds could be lower if
the bonds were marked to market value. (The price of bonds in
the secondary market fluctuates). This has caused the
redemption. (Others also said that some investors had shifted
their money in the funds to purchase Bank BRI shares sold last
week through an initial public offering (IPO). The IPO was a
notable success as it was nearly 14 percent oversubscribed).
Herwidyatmo said that investors redeemed their investments in
the funds because of ignorance of the importance of the
marked-to-market policy to make their investments reflect real
market value.
"Some have already implemented this policy," he said.
He added that investors must also be aware that there would
always be a risk in investing in mutual funds, as in any other
business.
Asked whether the agency would proceed with the plan,
Herwidyatmo said only that his office was still discussing it
with the central bank and the Ministry of Finance.
The country's mutual fund industry has been growing rapidly as
investors both here and overseas seek investment alternatives
offering better returns.
According to data from Dow Jones, assets managed by mutual
funds in Indonesia have jumped more than tenfold since the start
of 2002 to Rp 85 trillion at the end of September.
The boom has created fear among authorities that the trend may
not be sustainable, which has prompted the move to tighten
regulation within the industry. Prior to the planned Bapepam
ruling, Bank Indonesia had ordered mutual funds to drop funds
that guarantee investors a minimum return by the end of this
year. Authorities are concerned the guarantee has led investors
to underestimate the risks in the mutual fund industry.
The Directorate General of Taxation had even previously
considered levying tax on gains obtained from mutual fund
investment, which had also caused some redemption.
The Jakarta Post, Jakarta
Chairman of the Capital Market Supervisory Agency (Bapepam)
Herwidyatmo denied reports there had been massive redemption in
the country's mutual fund industry.
He said on Friday that redemption by investors during the past
few weeks reached only around Rp 4 trillion to Rp 5 trillion
(US$591.72 million)
He was responding to earlier reports saying that plans by the
capital market watchdog to tighten up regulation of the booming
local mutual fund industry had frightened investors, and caused a
massive redemption of around Rp 30 trillion during the past few
weeks.
Under the Bapepam plan, fund managers will be required to mark
the underlying assets of mutual funds to market value,
particularly as many funds have overstated the value of their
bond holdings.
Mutual funds in this country have invested heavily in
government bonds, given declining interest rates and a rally in
the local bond market. In fact, around half the government bonds
available for investors are being taken up by mutual funds.
Reports said that the plan had created jitters among
investors, fearing that gains from the funds could be lower if
the bonds were marked to market value. (The price of bonds in
the secondary market fluctuates). This has caused the
redemption. (Others also said that some investors had shifted
their money in the funds to purchase Bank BRI shares sold last
week through an initial public offering (IPO). The IPO was a
notable success as it was nearly 14 percent oversubscribed).
Herwidyatmo said that investors redeemed their investments in
the funds because of ignorance of the importance of the
marked-to-market policy to make their investments reflect real
market value.
"Some have already implemented this policy," he said.
He added that investors must also be aware that there would
always be a risk in investing in mutual funds, as in any other
business.
Asked whether the agency would proceed with the plan,
Herwidyatmo said only that his office was still discussing it
with the central bank and the Ministry of Finance.
The country's mutual fund industry has been growing rapidly as
investors both here and overseas seek investment alternatives
offering better returns.
According to data from Dow Jones, assets managed by mutual
funds in Indonesia have jumped more than tenfold since the start
of 2002 to Rp 85 trillion at the end of September.
The boom has created fear among authorities that the trend may
not be sustainable, which has prompted the move to tighten
regulation within the industry. Prior to the planned Bapepam
ruling, Bank Indonesia had ordered mutual funds to drop funds
that guarantee investors a minimum return by the end of this
year. Authorities are concerned the guarantee has led investors
to underestimate the risks in the mutual fund industry.
The Directorate General of Taxation had even previously
considered levying tax on gains obtained from mutual fund
investment, which had also caused some redemption.