Mutual funds remains the best alternative

Mutual funds remains the best alternative

Hendarsyah Tarmizi, The Jakarta Post, Jakarta

Although many people have turned their investments into shares
to take advantage of the bullish stock market, fund managers
still believe that mutual funds will remain the favorite among
individual and institutional investors.

Besides, stocks are much riskier, and many local investors
doubt if the bullish condition of stock trading will last until
the end of the year.

Factors that could alter the current market trend will
generally be non-economic, such as the national elections.

Some fear that political conflicts that might occur during the
April general election and the country's first direct
presidential election in July could affect political stability
and security, although political and economic analysts dismiss
such fears.

Alder H. Manurung, an investment fund manager, believes that
mutual funds will continue to be a prime investment option for
both individual and institutional investors this year, despite
the relocation of large amounts of investment from mutual funds
to the stock market.

Alder is optimistic that the growth of mutual funds will
remain high, albeit not as high as in 2003. "This year, mutual
funds investment will grow by about 50 percent. With this
increase, total mutual funds assets would reach about Rp 150
trillion (US$17.65 billion)," he writes in InfoBank financial
magazine.

Mutual funds was first introduced in Indonesia in 1996, but it
did not get much publicity until 2002, thanks to the involvement
of banks offering mutual funds.

According to data released by the Capital Market Supervisory
Agency (Bapepam), the net asset value of mutual funds surged to
Rp 46.60 trillion at the end of 2002, a 480 percent increase from
Rp 8 trillion in 2001. The number of mutual fund holders also
rose by almost 145 percent to 125,820 in 2002, from 51,723 in
2001.

In 2003, the net asset value of mutual funds continued to
increase amid the falling interest rates offered by local banks.
At the end of August 2003, the net asset value of existing
mutual funds rose to Rp 81.32 trillion, a 75 percent increase
from Rp 46.61 trillion in 2002. The number of mutual fund holders
rose to 149,358 during the same period.

Bapepam has not yet released complete data for the 2003 fiscal
year, but mutual fund analysts estimate that the net asset value
of mutual funds reached at least Rp 100 trillion by year's end.
According to this estimation, the increase in the total net asset
value in 2003 would be about 105 percent.

As with Alder, other fund managers are also optimistic about
the healthy growth of mutual funds. Although they might be less
optimistic than Alder, they are still upbeat that growth will
reach at least 20 percent.

Rosinu, president of Trimegah Securities, estimates that the
growth rate of mutual funds would decline to 20 percent this
year, partly due to the migration of investment to the stock
market.

"Although mutual funds provide returns of between 9 percent
and 12 percent, many investors will still invest their money in
stocks due to concerns over electoral uncertainties," he said.

At present, four popular types of mutual funds are available
in the market.

One is the fixed income mutual funds, which are largely
invested in fixed income financial instruments such as time
deposits, corporate and government bonds. Another is stock-based
mutual funds, which are invested in shares traded on the stock
market; a third is the foreign currency-based mutual funds; and
the last is the mixed mutual funds, which are diversified into
stocks, fixed-income mutual funds and foreign currencies.

The annualized return of fixed-income mutual funds as of Feb.
16, reached between 10 percent and 12 percent -- a time deposit
offers between 7 percent and 8 percent.

Mixed mutual funds booked an annualized return of 15 percent
to as high as 80 percent as of this month, depending on where the
bulk of the funds are invested.

Stock-based mutual funds provided the highest return. The
annualized return of this investment option ranged from 50
percent to more than 100 percent as of this month, thanks to the
sharp increase in stock prices. Share prices increased by an
average of 60 percent in 2003, but the increase of the prices of
certain shares was higher at more than 100 percent.

Many individual investors, however, still regard stocks as too
risky due the volatility of their prices.

Alder said that fixed-income mutual funds, which is the most
popular mutual fund option so far, will not lose its allure
despite the lowered bank interest rates.

"Besides, they are safer and their net return is higher than
those provided by time deposits or savings," he said of the
advantages of the fixed-income mutual funds.