Investors urged to set up mutual funds
Investors urged to set up mutual funds
JAKARTA (JP): The new capital market law should provide the momentum for domestic institutional investors, including pension funds, to become more active on the stock market through mutual funds, an official said.
The chairman of the Indonesian Capital Market Supervisory Agency (Bapepam), I Putu Gede Ary Suta, said on Tuesday that Bapepam has worked hard to support the establishment of mutual funds, particularly after the introduction of the new law, which allows the establishment of open-end mutual funds.
He said that Bapepam is now trying to persuade the Directorate General of Taxes not to impose double taxation on the incomes of mutual funds.
"I think it is unfair that while some foreign pension funds and asset management companies are willing to invest in our stock market, the domestic pension funds and insurance companies have yet to increase their participation," he noted.
Pension funds and insurance companies, according to the new law, may function as sponsors of a mutual fund.
He said that last year, Indonesian pension funds allocated less than 11 percent of their total funds for investments in the stock market.
A director of Nomura Indonesia said that insurance companies invested only 3.8 percent of an estimated Rp 12 trillion (US$5.21 billion) in total funds in the stock market as of last year.
However, the president of Bank Indonesia's pension fund, Aibar Durin, said that his fund actually increased its investments in the stock market in the last few years.
"Bank Indonesia's pension fund increased its investment in the capital market from 15 percent in 1993 to 25 percent in 1995." Durin said. "And we will raise it to about 35 percent this year."
The discussion, which was attended by executives from investment management companies, securities firms and financial institutions, also discussed details of regulations on share redemption.
The capital market law says that the investment manager of an open-end mutual fund is obliged to repurchase the shares of a mutual fund if its shareholders want to return the shares.
An associate director of PT Lippo Investment Management, Achfas Achsien, said it might be very difficult for investment managers to buy back all shares if the shareholders are allowed to return their shares anytime they want to.
In Hong Kong, he said, such redemption is limited to a maximum of ten percent per week.
Moreover, unlike in Indonesia, a mutual fund in Hong Kong is allowed to leverage its position with loans from banks.
"Without a hedging mechanism, a mutual fund may be forced to sell a large amount of shares, which, in turn, may cause a price drop. This would be a bad move for other shareholders," Achsien explained. (08)