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.