Vincent Fabian Thomas, Jakarta – Indonesian mutual funds are down some 10 percent this year, as global rate hikes and new domestic regulations push money elsewhere.
The sector's net asset value dropped to Rp 521 trillion in October, Financial Services Authority (OJK) data shows, marking a more than 10 percent year-to-date (ytd) plunge, three times the drop that occurred in same period last year.
The OJK has recorded large numbers of investors pulling out of mutual funds, marked by a net redemption of more than Rp 61 trillion as of Oct. 25, dwarfing the Rp 4.85 trillion net redemption recorded last year.
Four of the five largest investment managers in Indonesia have seen their assets under management (AUM) drop between 11 and 31 percent ytd, according to the Indopremier investment app, collectively losing more than Rp 37 trillion in AUM.
Analysts say the drop was a result of interest rate hikes and policy changes regarding taxation and insurance brokers.
A new OJK rule that requires insurers to disclose the content of their portfolios, aimed at preventing embezzlement and other scandals that have plagued the industry, has caused insurance firms to move their funds over to the more transparent fund administration agreements (KPDs) from the previous mutual funds.
"Around a fifth of our mutual funds' net asset value came from insurers. Now some have shifted their funds to KPDs, but more will follow. Mutual funds will continue declining until all [insurers'] funds are shifted to KPDs," Wawan Hendrayana, deputy CEO at research and consulting firm PT Infovesta Utama, said on Thursday.
As of October, equity-heavy mutual funds had seen their total net asset value drop by Rp 21 trillion, OJK data shows, while money market funds had seen a Rp 19 trillion drop.
Fixed-income mutual funds, the largest class of Indonesian mutual funds by asset value, have lost the most in gross terms, more than Rp 27 trillion as of October, as higher world interest rates pushed up yields and preexisting government bonds took a hit.
The tax rate on mutual funds has doubled to 10 percent since 2020, on par with directly owning government bonds, Wawan said, encouraging institutional investors to simply buy the instruments directly, especially given the fees on managed funds.
Maximilianus Nico Demus, director at Pilarmas Investindo Securities, said on Friday that it would take quite a while for the industry to recover but that Indonesia had some marks in its favor, such as a well-managed deficit and relatively strong economic growth.
Panin Asset Management director Rudiyanto expected the IDX composite index to hover around 8,100 to 8,200 next year.
Infovesta's Wawan noted that fixed-income instruments could become more attractive in the future as world interest rates stabilized. Meanwhile, money market mutual funds could benefit from expected rate increases.
"Every year there will always be risk. Investors are advised to keep diversifying and investing periodically," Rudiyanto said on Thursday.
The OJK said on Nov. 3 that it would keep a close eye on mutual funds to ensure that investors could redeem their investments in an orderly manner.