Strong stock market to limit growth of mutual funds

Leony Aurora, The Jakarta Post, Jakarta

The country's mutual funds industry is expected to remain an attractive investment alternative next year, but its growth will not be as rapid as this year, according to the experts.

"The prospects for mutual funds in 2005 are still good. Their growth, however, may not be as rapid as this year," said the chairman of the Indonesian Mutual Funds Association, Muhammad Hanif, on Monday.

He said that one of the reasons why growth would slow was the expected rally in the stock market, which would encourage investors to focus more on the equity market.

The mutual funds sector grew rapidly over the past couple of years, thanks mainly to a government policy that provides tax breaks for mutual funds investing in bonds. By comparison, interest on time deposits is subject to 20 percent tax.

The tax incentive is valid during the first five years since the floatation of a mutual fund. But there is a possibility that the government will drop the tax facility next year.

Several analysts have warned that this measure could kill the local mutual fund industry.

Hanif was quoted by detik.com as saying that as of September this year, the amount of money invested in mutual funds stood at Rp 96 trillion (US$10.21 billion), 40 percent more than the amount at the same time last year.

The value of mutual funds is expected to reach Rp 100 trillion by the close of this year.

Hanif said that to help maintain investor interest in the mutual funds sector, improvements in the domestic investment climate were crucial.

Separately, Jakarta Stock Exchange chairman Erry Firmansyah concurred, saying that the government needed to provide a conducive climate so that ordinary people would feel confident about investing their money in mutual funds.

"The investment habits of our people are very limited -- generally confined to banks -- since (their savings) are guaranteed (by the government)," said Erry during a discussion on investment prospects in 2005.

"We should try to encourage people to think about taking more risks with investment. The risk inherent in mutual funds is minimal," he added.