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.