Mutual fund industry hit hard by huge redemptions: Assosiation

The Jakarta Post, Jakarta

After experiencing a boom over the past three years, mutual funds are coming back down to earth with a surge in redemptions since early this year, industry players say.

Indonesian Mutual Funds Issuers Association (APRDI) chairman Muhammad Hanif said on Tuesday the net asset value of mutual funds had reached its lowest level since 2002.

"Today's net asset value stands at Rp 46 trillion, same as the value recorded at the end of 2002," he said at a discussion on local mutual funds.

The figure is a far cry from the Rp 111.13 trillion posted in January, according to Capital Market Supervisory Agency (Bapepam) data, in what the agency said was a result of a vast imbalance in the amount of redemptions and new subscriptions.

The director of PT Trimegah Securities, Desimon, said the consistent hike in Bank Indonesia's key reference interest rate partly attributed to the redemption in mutual funds.

"The hike in Bank Indonesia's rate has prompted people to redeem their investments and move them to time deposits, which are offering higher yields (because of the rate hike)."

Time deposits currently offer up to 10 percent interest rates, while fixed-income mutual funds only offer about 8.5 percent.

Noor Hassim of BNI Securities, which experienced a "run" by its investors, said the situation would not have happened had investors really understood how the capital market worked.

"Gains and losses are normal. That's the way the market works. They should keep their investment rather than redeem their securities at such a time," he said, adding that his company had redeemed Rp 5 trillion in securities so far.

Hanif believed it would take a long time for the market to bounce back and return to the value it booked earlier in the year, but was optimistic that people would reinvest in mutual funds in the near future.

"Prices of government bonds are low now. People know that if they buy the bonds now, they will gain a high yield when they mature," he said.

Most of the country's actively traded mutual funds use government bonds as their underlying assets.

"This is the way the funds' value may rebound, but we will not see it return to the value of over Rp 100 trillion by the end of the year," Desimon said. (006)