Mutual funds set up to lure local investors
JAKARTA (JP): Mutual funds are hoping to lure more local investors into the capital market which is still dominated by foreign investors.
Many analysts agree that more mutual funds would benefit the local stock exchange by strengthening the domestic investor base.
The chairman of the Capital Market Supervisory Agency (Bapepam), I Putu Ary Suta, said the 1995 Capital Market Law had encouraged the establishment of mutual funds, especially open-end funds.
The previous capital market law allowed only for closed-end mutual funds, thereby restricting the growth of mutual funds. Under the old legislation, only one fund, BDNI Reksadana, managed by PT BDNI securities, was established.
"Mutual funds will become a good portfolio investment for investors," said Putu.
Under the new law, 22 mutual funds had been set up as of the end of last year, including the closed-end fund BDNI Reksadana, according to Bapepam data.
The value of the funds' total net assets is an estimated Rp 2.28 trillion (US$951.9 million).
The latest mutual fund, Nikko Inti Nusantara Mutual Fund managed by PT Nikko Securities, was launched last month. Nikko Securities expects to generate Rp 1 trillion from the funds within three years. During its inception, the fund secured Rp 370 billion, or 37 percent of its total capitalization, from sponsors.
Nikko's sponsors include Bank Central Asia, Bank Bali, Bank Ciputra, PT Indolife Pensiontama, PT Asuransi Kesehatan Indonesia and PT Asuransi Jiwa Central Asia Raya.
Bapepam is currently in the process of approving several more mutual funds -- including one from PT Pentasena Arthasentosa, which is expected to manage Rp 1.5 trillion -- and PT Trimegah Securities.
Mutual funds are often more attractive to retail investors as the risks are considered to be lower than direct investments in stocks.
"The investors do not need to think about how to manage the investment because the fund managers have it taken care of," said an analyst from a joint venture securities firm.
In addition, most mutual funds in Indonesia invest the bulk of their funds in fixed income securities such as bonds and certificates of deposit.
Nikko Securities, for example, invests around 80 percent in fixed income securities and the rest in equities.
Fixed income securities are generally the most preferred investment instruments for their relatively high returns.
Of the Rp 2.28 trillion managed by mutual funds here, around 80 percent of the assets are invested in fixed income securities and 20 percent in stocks.
JSX president Cyrill Noerhadi agrees with the strategy but still encourages funds and insurance firms to invest more in equities. He added that mutual funds were a good place for young investors to put their money.
"If they do not want stocks and bonds, they can invest in mutual funds. Mutual funds can provide even higher returns than time deposits," he said.
A dealer with a local brokerage firm said over the weekend that mutual funds need to promote themselves to attract more investors.
The number of local, individual investors in the capital market is approximately 500,000, or 0.2 percent of the population. Foreign investors accounted for 60.18 percent of the trading activity on the JSX in 1996, down from 67.03 percent in 1995.
Most capital market observers agree that the number of domestic investors will have to increase in the next few years if the JSX is to become one of the biggest capital markets in the Asia-Pacific. More mutual funds and the privatization of state firms should gradually bring the target within reach, as state- owned company shares tend to promise strong returns and are likely to entice local investors.
The initial price offering for shares in state-owned Bank BNI, for example, attracted 192,000 individual investors and 537 institutional investors. The initial share offerings by state companies PT Indosat, PT Telkom, PT Tambang Timah a few years ago also attracted many domestic investors. (09)