Will your money grow in mutual funds?

JAKARTA (JP): Your money will grow, grow and grow, says one local mutual fund advertisement. But will your money really grow, grow and grow when you invest in mutual funds in times of falling stock markets? It could.

First of all, mutual funds are managed by professional fund managers who make day-to-day investment decisions for investors, based on extensive investment research and sophisticated technology.

Besides, mutual funds have a built-in diversification characteristic, which will hold many individual securities to help spread the risk and reduce the effect of market ups and downs on returns. Thus, mutual funds save investors from the danger of "putting all your eggs in one basket."

Many mutual funds have proven that your money will grow, grow and grow in their hands. Net assets value (NAV) of fixed-income mutual funds -- mutual funds that invest in fixed-income securities -- such as Panin Dana Optima, ABN Amro Dana Dollar AS, BNI Dana Berbunga, and Nikko Obligasi Nusantara, gained by 66 percent, 39 percent, 25 percent and 20 percent respectively in the last 12 months.

In fact, most fixed-income funds booked gains in the past year. And this is so, as fixed-income funds generally hold fixed- income securities such as certificate of deposits and bonds that provide regular income payments to investors or shareholders.

However, many investors have also lost their money in the hands of mutual funds. Almost all stocks funds -- namely mutual funds that invest in stocks or equities -- booked losses in the past year. This is true as domestic stock markets have never really recovered since when the financial crisis hit the country in mid-1997.

Besides fixed income and stock funds, there are also money market funds and balanced funds available in Indonesian markets. Money market funds invest in very short-term securities and thus offer some income and a high decree of safety. Money market funds in Indonesia booked positive net asset value growth in the past year, ranging from 9 percent to 12 percent.

Balanced funds invest in a mix of equity and fixed-income securities. And almost all balanced funds in Indonesia booked losses last year, again because of the tumbling stock market.

Thus, how should investors choose a mutual fund?

"It all depends on the kind of person you are," said Andre Cita, a technical advisor to Kim Eng Securities.

If the investors were looking or long-term security and stability, normally they would go for fixed-income funds. But If they were looking for more aggressive growth, they would be looking for mutual funds that invested their funds in equity or more balanced funds, he said.

There are more than 90 mutual funds in the country. How do investors choose a good mutual fund?

"Just look at their names," Cita suggested.

Selecting mutual funds attached to big-time names, such as Citigroup and ABN Amro, would be the easiest way to select a good mutual fund. The names basically provide some regulations because they have to protect their reputation.

"The idea is that they won't mess around or do something bad for their clientele because if they do, they know their reputation will be tarnished and it will hurt other areas of their businesses," he said.

What is more important in selecting a mutual fund is reading its prospectus, said Rizka Baely, country manager Indonesia of Citigroup Asset Management, which is represented legally in Indonesia by PT Citicorp Securities Indonesia.

"Reading a mutual fund's prospectus is a must. By reading the prospectus, investors will know who its fund managers are and where the money is invested in," she said.

In addition, investors can use information available in the market, including from rating agencies, to choose a good mutual fund.

Recently, for instance, the Prospektif Star Rating by Prospektif magazine evaluated the performance of 68 mutual funds. Based on the evaluation, the magazine found only four mutual funds had outstanding performances.

They are ABN Amro Indonesia Dana Obligasi, BNI Dana Berbunga, CitiReksadana Rupiah and Schroder Dana Prestasi.

On top of that, investors should know if the mutual funds they want to buy are open-ended or close-ended funds, and if they are loaded or nonloaded funds.

A close-ended fund sells its shares either over-the-counter or through one of the major exchanges. If the owner of the shares of a close-ended fund wants to sell his shares, he must find a buyer to purchase the shares.

An open-ended fund is what most people associate with the term mutual fund. An open-ended fund sells shares to investors and also agrees to buy the shares back at their net asset value (NAV) at any time in the future.

Investors also need to know whether a fee is imposed when they purchase or redeem the shares of a mutual fund. Loaded funds have sales charges, while nonloaded funds do not have sales charges when shares of funds are bought or sold Both loaded and nonloaded funds, however, charge management fees and may also charge for marketing expenses.

Where should investors buy mutual funds?

"Go directly to a mutual fund agent," Rizka suggested. She noted that before buying mutual funds, investors should really know what they are doing. She suggested investors directly meet with the agents and discuss with them their investment objectives.

After that, investors could do fund transactions through banks' automated teller machines (ATMs) or even the Internet.

In a bid to grab more investors, a number of mutual funds in the country have offered funds though ATMs and the Internet. Mutual funds that have been made available through ATMs include Nikko Milenium (that could be purchased through ATM BCA) and Reksa Dana Megah (ATM Niaga). While those wanting to do mutual fund transaction through the Internet can go to Danamas.com, jointly owned by BII Lend Lease Investment and its affiliate Sinar Mas Multiartha.

To target more customers, a number of mutual funds offer products specially designed for Muslim investors. They include Danareksa Syariah, PNM Syariah and PNM Dana Sejahtera.

But those efforts of selling mutual funds have borne little fruit. The number of investors in mutual funds rose to 37,291, as of November, 2000, from 24,127 at the end of 1999.

However, this is still a very small number of investors, considering the country's population of around 210 million people. Moreover, the funds managed by the country's mutual funds have not really increased since 1997, remaining stagnant at about Rp 9 trillion.

Nevertheless, both Rizka and Cita expressed their optimism that mutual funds would eventually attract more investors and managed more money in line with the recovery of financial markets and the economy.

-- Riyadi Suparno