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)