Pension funds urged to invest in mutual funds
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)