Pension funds urged to invest in mutual funds

JAKARTA (JP): The Minister of Finance has issued a new ruling encouraging pension funds to invest in mutual funds to help build a strong domestic base for local stock markets.

Finance ministerial decree No. 93/KMK.017/1997, dated February 28, stipulates pension funds can invest a portion of their funds in mutual funds.

The Ministry of Finance pension fund director, Sophar Lumbantoruan, said yesterday a pension fund could invest up to 10 percent of its investments in a mutual fund.

" They can invest all of their funds in 10 different mutual funds, if they wish," Sophar said.

The ruling amends the previous decree which stipulated pension funds could put their money in time deposits, certificate of deposits, stocks, bonds, money market securities, equity participation, land and buildings.

So far the government has licensed 239 pension funds established by companies for their employees and 21 other pension funds managed by banks or life insurance firms.

The 239 pension funds managed Rp 20 trillion (US$8.3 billion) as of the end of last year, of which Rp 14 trillion were invested in financial instruments.

The other 21 pension funds managed Rp 187 billion as of the end of last year, of which Rp 183 billion were invested in financial instruments.

Sophar said 55 percent of pension fund investments were put in bank deposits, while only 10 percent went into in stocks, 10 percent in bonds and 15 percent in property.

The new ruling is expected to encourage pension funds to indirectly enter the local stock exchanges through mutual funds.

Capital Market Supervisory Agency data shows that since the promulgation of the 1995 capital market law, 22 mutual funds have been set up as of the end of last year. Four new mutual funds were established earlier this year.

The value of the 22 funds' net assets is estimated at Rp 2.28 trillion, of which 80 percent was invested in fixed income securities and 20 percent in stocks.

The larger number of mutual funds available are believed to be able to attract new domestic retail investors to domestic stock markets which are dominated by foreign investors.

Foreign investors accounted for 60.18 percent of trade on the Jakarta Stock Exchange in 1996, down from 67.03 percent in 1995.

The direct or indirect involvement of pension funds in domestic stock markets would inject fresh life to the markets.

Sophar said pension funds would be one of the largest institutional investors in stock markets, considering the amount of money managed by pension funds had been increasing 30 percent a year.

"Pension funds have been growing quite rapidly and the growth potential is still very large as some 80 percent of our workers are not yet covered by pension benefits. That's the challenge," Sophar said.

He said companies should set up pension funds for their employees. He encouraged workers who did not yet take part in any pension program to join a pension programs offered by financial institutions.

To encourage the development of pension funds, the government has provided them with tax facilities.

Sophar told operators of pension funds not to abuse such facilities.

He said a significant a portion of money invested in banks or stock markets were made in the name of pension funds to benefit from income tax exemption.

"But so far we have not yet found any tax evasion cases engineered through pension funds," Sophar said.

He warned that anyone trying to evade tax through pension funds faced five years jail and a fine of up to Rp 5 billion. (rid)