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With the sharp increase in share prices last year, equity
funds mostly yielded returns ranging from 50 percent to more than 80
percent in 2007.
The Indonesian stock market closed the 2007 year with its composite
index rising about 52 percent from the previous year, leaving investors
with an average return of over 50 percent.
The benchmark composite index at the Indonesia Stock Exchange, formerly
known as the Jakarta Stock Exchange, went up almost 60 percent in 2007
on the back of the sharp increase in the prices of mining, plantation
and other resources-based stocks.
With the increase, the Indonesian stock market became the third-best
performing market in the Asia Pacific region after China's Shenzhen and
Shanghai exchanges.
Analysts predicted the boom would continue this year, albeit at a lower
growth rate, making the stock market a better investment than fixed
income investments such as bank deposits or bonds.
"It will be wiser for people to invest their money in the stock market
this year," said Edward P. Lubis, an analyst at PT Bahana TCW
Investment Management.
Another analyst at Bahana TCW, Budi Hikmat, predicted the stock market
would yield returns of 20 percent this year. However, he added, it was
also possible the stock market would repeat last year's growth of 52
percent.
Lubis said people could invest their money in the stock market directly
or buy mutual funds offered by fund management companies.
A mutual fund is a professionally managed collective investment which
pools money from both institutional and individual investors. The funds
are then invested in stocks, bonds, short-term money markets and other
securities.
Since the first mutual fund, BDNI Reksa Dana, was launched in 1995, the
number of mutual fund products has continued to grow, reaching 469 as
of October last year from 75 registered investment houses, according to
the Financial Institutions and Capital Market Supervisory Agency.
There are four types of mutual funds: "money market funds", where the
portfolio is wholly in short-term money markets such as central bank
bills, treasury bills and promissory notes; "fixed income funds",
invested mostly in corporate or government bonds and bank deposits;
"equity funds", invested in corporate shares; and "balanced funds",
which combine investment in stocks and bonds.
An equity fund, said Budi, generally offers a higher potential return
as a larger portion of the investment is placed in stocks. This kind of
fund, however, carries a higher risk.
"This year, the equity funds will remain more attractive, especially
those which focus their investment in shares of companies engaged in
the coal mining, plantation, property and automotive sectors, as well
as infrastructure," he said.
He said investing in bonds or other fixed income instruments would
carry a lower risk, but for this year, this kind of investment was not
recommended.
Last year, he said, the fixed income funds managed by Bahana TCW gave a
return of less than 10 percent, far lower than the 52 percent provided
by its equity funds.
"This year, the equity funds could yield a return of 20 percent. It
could be higher, depending on the market condition and the
implementation of government regulations tax and foreign investment,"
he said.
The government announced it would release a new regulation offering a
tax incentive to listed companies in the form of tax reduction to
bolster stock market performance.
Earlier this month, Finance Minister Sri Mulyani expressed her optimism
regarding the mutual fund industry, saying the industry might grow even
further in 2008.
As of the end of last year, the net asset value (NAV) of mutual funds
rose by 75 percent to Rp 90 trillion (US$9.54 billion).
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