Citibank, Schroders launch new mutual fund
Citibank, Schroders launch new mutual fund
Sandy Darmosumarto, The Jakarta Post, Jakarta
Citibank and investment fund management company Schroders
signed an agreement on Wednesday to launch a new mutual fund
focussing on medium-to-short term government bonds bearing fixed
returns.
The relatively benign inflationary environment and the
continuous decline in the interest rate on Bank Indonesia SBI
promissory notes are some of the reasons for Citibank and
Schroders to set up the fund.
"With the SBI continuously declining, consumers are looking
for alternative products to invest in," said Batara Sianturi,
director of retail banking with Citibank.
According to statistics, the yield from investing in
government bonds is on average between 11 and 13 percent, which
is much higher than the current SBI rate of around 8.5 percent.
"We are optimistic that interest rates will maintain their low
level and that mutual funds bearing fixed returns will become the
choice of investors," said Michael Tjoajadi, president director
of Schroders Investment Management Indonesia.
Michael expected that the SBI interest rate would remain in a
range of between eight percent and ten percent, lower than more
than 13 percent prevailing at the beginning of this year. He also
expected that the central bank would keep inflation in a range of
between four percent and six percent.
It is expected that lower inflation will help increase the
demand for government bonds because they provide investors with
stable earnings without having to worry that they will lose their
gains to higher prices for goods and services.
This is why government bonds are deemed a safer investment
amid declining interest rates and lower inflation. In addition,
such bonds entail the smallest risk relative to other
instruments.
Bloomberg data shows that yields on government bonds rose by
three percent, from 10 percent to 13 percent, between mid-August
and mid-November.
Over Rp 20 trillion (US$ 2.4 billion) worth of government
bonds are to be re-issued next year. The sources for this high
volume are bonds sold by banks aiming to achieve better liquidity
and newly issued bonds used by the government to finance its
infrastructure projects as well as to re-finance its debt.
About Rp 400 trillion worth of government bonds has been
issued. On average, Rp 90 trillion worth of bonds are traded
every quarter, said Michael.
Batara added that "the flexibility to diversify mutual fund
investment between the bond and the money markets will allow
investors to divide their risks between fixed income and money
market instruments." The new financial product will also utilize
term deposits, SBIs, and T-bonds in order to cater to investors
with various risk preferences.