New law gives legal basis for mutual fund industry
New law gives legal basis for mutual fund industry
JAKARTA (JP): The new capital market law provides a strong
legal foundation for the development of a mutual fund industry in
Indonesia, says Minister of Finance Mar'ie Muhammad.
Mar'ie said yesterday that the new capital market law, which
will become effective in January, does not only stipulate
guidelines for the operation of mutual fund companies but also
rulings related to the protection of investors.
In his keynote address at a one-day conference on a mutual
fund industry, the minister said that the development of the
mutual fund industry is one important strategy in expanding the
country's capital market.
Another key factor, according to the minister, is to increase
confidence in capital market institutions.
The importance of mutual funds for the development of the
domestic capital market is that this form of investment allows
small investors to obtain the benefits of a professionally
managed and diversified portfolio of securities at reasonable
costs, he said.
"By offering savers a convenient and less risky way to
participate in the capital market, a broader participation in the
market is encouraged," the minister said in his written speech,
which was read by Chairman of the Capital Market Supervisory
Agency (Bapepam) I Putu Gede Ary Suta.
Speakers at the conference, jointly sponsored by Bapepam and
Hong Kong-based Merrill Lynch Asset Management, included Bank
Indonesia Governor J. Soedradjad Djiwandono and a number of
Merrill Lynch executives.
The newly open-end mutual funds authorized by the capital
market law are an investment product designed for ordinary
people.
Bapepam should, therefore, step up its supervision to protect
small investors, he said.
"When small investors are defrauded by unscrupulous securities
sales persons, the pain and suffering caused to individuals is
much greater than an equivalent loss to a sophisticated financial
institution," he said.
The new capital market law imposes severe penalties for
securities fraud, mostly related to the marketing process, he
said, citing that a sales person who defrauds an investor when
selling a mutual fund product could face criminal sanctions of up
to 10 years in jail.
"This might seem excessive, until we remember that defrauding
a small investor may mean taking away a lifetime of savings," he
said.
Investing through mutual funds will benefit individual savers
because they will consequently acquire access to capital market
investment instruments, which provide better matching of long-
term liabilities, such as retirement and education, with long-
term investment assets such as stocks and bonds.
Soedradjad said that the establishment of a mutual fund
industry will provide an alternative investment for individual
investors besides the traditional forms of investment such as
bank deposits, gold or property.
He said that the emergence of the industry would complement
the banking system rather than substitute it.
"In a way, it would appear that the development of this
industry will divert some potential bank customers into the
capital market," he said.
However, as is the case in other countries, the pool of money
being received by the issuers of shares will in one way or
another feed back to the banking system, he said. (hen)