The current financial consultants in the Indonesian market suggest the Indonesians diversify their investment portfolio by investing a small percentage of balanced funds and equity funds. These financial instruments are volatile, yet generate double or… More
Investment opportunities in Indonesia
Savings accounts are a great way to inculcate the savings habit and fixed deposits are a great way to experience increased returns the risk-free way. However, once you get serious about investing and securing a great future for yourself and your family, you may have to break free of the comfort zone created by savings account and fixed deposits and consider other options.
Here, we present to you some of the investment opportunities available right here in Indonesia. This will, hopefully, serve as a starting point for further research, learning and action on your part. But, before we start listing the opportunities available, here are some pointers that you should keep in mind:
Before you start…
What do you want?
Have clarity on what you are aspiring / aiming for. This could be a home, a sizeable retirement income, a corpus for your child’s education etc. You should basically be listing down your goals. However, ensure that your goals are realistic given your current income and liabilities and realistically expected future income and liabilities.
What is your risk appetite?
Next, gauge your risk appetite. This will require an understanding of the investment opportunities available. Once you know what are the investment options open to you, you will need to understand the amount of risk that you are willing to take on board.
How do I come up with an investment plan?
You know your goals. You know your income and liabilities. You know your risk appetite. You will need to come up with a concrete investment plan to help you meet your goals. You may need to take the help of a qualified financial planner to help you plan your way. However, ensure that the “Investment/Financial Advisor” is properly certified as per the Indonesia Financial Services Authority / Otoritas Jasa Keuangan regulations in this regard.
Investment choices available in Indonesia
Equities – Equities or stock or shares represent units of ownership in listed companies. Investing in stocks provides investors with the following benefits: Dividends, Bonus Stock and Capital Gains. Shares have been one of the most popular choices of investment as equities have typically outperformed other investment types over the long run, including bonds and cash held in bank deposits.
Bonds – Bonds, also known as fixed income securities are debt instruments created for the purpose of raising capital. Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects.
The following types of bonds are available in the Indonesian Stock Exchange (IDX): Corporate Bonds, Government Bonds, Corporate Sukuk, State Sharia Securities/SBSN and Asset-Backed Securities (ABS).
Mutual Funds – A Mutual Fund is an instrument that is used to collect a pool of money from investors to be invested in a portfolio of securities by an independent, professional fund manager in order to maximize returns and diversify risks for investors.
The following types of mutual funds are available in Indonesia: Money Market Funds, Fixed Income Funds, Equity Funds, Discretionary Funds and Islamic mutual funds.
Exchange Traded Funds – ETFs can simply be defined as mutual fund traded in the Exchange. Like mutual funds, ETFs are collective investment contracts and involve an investment manager and a custodian bank; they are also similar to shares, in that their investment units are listed and traded on the exchange.
Derivatives – They are financial securities whose value is derived from the value of another security (underlying asset) such as equity or debt instrument. There are a number of option and future derivative products available on the Indonesia Stock Exchange.
Investment Plans – These plans require you to invest a fixed amount every month for a pre-determined period; these amounts are invested in mutual funds in accordance with your choice and risk profile.
Importance of Fixed Deposit Accounts
A Fixed Deposit account or a Time Deposit account, as it is sometimes called, is a type of account that offers a fixed and guaranteed rate of return on your investment.
Benefits of Fixed Deposits
Fixed Deposits are a great avenue to invest in if you have some surplus cash in hand. Here are some benefits that you get through investing in fixed deposits:
Higher Interest – Fixed deposits provide higher interest income than what is available with savings accounts or current accounts.
However, with effect from 01st October 2014, the Financial Services Authority (OJK) has capped the rate at 200 basis points (bps) above the Bank Indonesia (BI) benchmark rate for BUKU IV lenders (banks with core capital of more than 30 trillion rupiah) and at 225 bps above the BI rate for BUKU III lenders (banks with core capital of between 5 trillion and 30 trillion rupiah).
No limit has been set for BUKU I and II lenders as they are believed to follow the rate movement of major banks. Regular time deposits below Rp 2 billion will still carry a maximum 7.75 percent interest rate, as guaranteed by the Deposit Insurance Corporation (LPS).
Also, some banks offer tiered interest rates; as the amount of money on deposit increases, the interest rate also increases.
Guaranteed Interest – Another attractive feature of fixed deposits is that the interest income is guaranteed; interest rates may fluctuate but once you invest in a fixed deposit at a particular rate of interest, the interest rate remains unchanged till the fixed deposit attains maturity. This feature will also help you plan and manage your finances as interest rates do not change during the tenor of the deposit.
Availability of flexible tenors – Fixed deposits are available at a variety of tenors ranging from 7 days to 24 months.
Deposit Currency – In addition to being able to create fixed deposits in Rupiah, some banks also offer their customers the flexibility to open fixed deposits in various other currencies also. These can be used as an alternative form of investment, as a hedge against exchange rate fluctuations, funding your child’s overseas education etc.
Automatic Roll Over – Some banks offer fixed deposit accounts that have an automatic roll over facility. This facility enables you to automatically renew your deposit upon maturity. You can choose to have the principal and interest renewed or the principal alone renewed with the interest earnings going to your current or savings account or you can choose not to renew at all with your principal and interest being credited to your current or savings account.
Overdraft Facility – Some banks also offer you the facility to avail an overdraft against your fixed deposit(s) with them. This way you will continue to earn interest on your deposit while still having getting access to funds for meeting any exigency.
Islamic Deposits
If you are interested in banking the Syariah-compliant way, there are Islamic fixed deposits also available. These deposits work on the principle of Mudharabah. Here, the bank acts as a mudharib (manager) to invest the deposited amounts and shares the resultant profits (and risk / losses) with the investor.
Deposit Insurance
Lembaga Penjamin Simpanan or the Indonesia Deposit Insurance Corporation (IDIC) insures deposits in the form of savings accounts, time deposits, current / checking accounts, certificates of deposits and/or other forms of deposit with similar characteristics. IDIC also insures Syariah-based deposits such as Wadiah-based current accounts, Wadiah-based saving accounts, Mudharabah-based saving accounts, and Mudharabah-based term deposits. The maximum amount of deposit insured by IDIC is Rp 2 billion per depositor per bank.
Tips to Invest your Money Online Safely
Whether investors want to ensure preservation of their hard-earned money or invest it in high risk, high yield avenues or try to ensure a balance between growth and preservation, there are a number of Investment opportunities available in Indonesia.
Investment choices available in Indonesia
Equities – Equities or stock or shares represent units of ownership in listed companies. Investing in stocks provides investors with the following benefits: Dividends, Bonus Stock and Capital Gains. Shares have been one of the most popular choices of investment as equities have typically outperformed other investment types over the long run, including bonds and cash held in bank deposits.
Bonds – Bonds, also known as fixed income securities are debt instruments created for the purpose of raising capital. Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects.
The following types of bonds are available in the Indonesian Stock Exchange (IDX): Corporate Bonds, Government Bonds, Corporate Sukuk, State Sharia Securities/SBSN and Asset-Backed Securities (ABS).
Mutual Funds – A Mutual Fund is an instrument that is used to collect a pool of money from investors to be invested in a portfolio of securities by an independent, professional fund manager in order to maximize returns and diversify risks for investors.
The following types of mutual funds are available in Indonesia: Money Market Funds, Fixed Income Funds, Equity Funds, Discretionary Funds and Islamic mutual funds.
Exchange Traded Funds – ETFs can simply be defined as mutual fund traded in the Exchange. Like mutual funds, ETFs are collective investment contracts and involve an investment manager and a custodian bank; they are also similar to shares, in that their investment units are listed and traded on the exchange.
Derivatives – They are financial securities whose value is derived from the value of another security (underlying asset) such as equity or debt instrument. There are a number of option and future derivative products available on the Indonesia Stock Exchange.
Investment Plans – These plans require you to invest a fixed amount every month for a pre-determined period; these amounts are invested in mutual funds in accordance with your choice and risk profile.
Online Investment Tips
▪ You can invest in the instruments of your choice through the online or mobile trading / investment platform or app provided by your bank or financial intermediary. To ensure peace of mind and safe transaction(s) follow safe online practices. Here, we’ve put together a few online investment tips:
▪ Carry out your investment transactions only from the correct website address. And, make sure that the website address is secure. You could do this by always checking for “https” in the website link to ensure that it is a secure website.
▪ Try and set limits for your online trading and investment transactions.
▪ Try not to trade or invest online from public computers.
▪ Every time you complete your online services session, first log off your account and then close the browser. Do not just close your browser without logging off.
▪ Finally, monitor your banking / investment / trading accounts. Check your monthly statements thoroughly. Also opt for email / SMS alerts that will keep you posted as soon as a transaction happens.
Tips to Invest in Mutual Funds
The Mutual Fund Industry in Indonesia
There are currently about 80 mutual fund houses in Indonesia that are active and competing for people’s funds. Most of these fund houses are Indonesian with a few foreign ones. However, the foreign one command a dominant share of the market. Schroder Investment Management Indonesia is the largest of the fund managers handling 46,23 trillion Rp almost double the size of the second-largest fund manager, France-based BNP Paribas Investment Partners.
The total Net Asset Value (NAV) of mutual funds rose to 209,51 trillion Rp as on June 27, 2014, an increase from 192.54 trillion Rp at the end of 2013. Equity-based funds account for almost half of the market (90.16 trillion Rp), followed by fixed-income funds (30.2 trillion Rp) and mixed-asset funds (18.34 trillion Rp). Protected funds amounted to 42.8 trillion Rp, while foreign-exchange funds totalled 16.1 trillion Rp. As of 28th November 2014, the total NAV of the Sharia mutual fund sector stood at 10.198,78 billion Rp with 70 Sharia mutual funds*.
Currently, only around 250,000 Indonesians (which is 0.1 percent of the country’s total population) invest in mutual funds, indicating that this industry is still in an infancy state and thus contains enormous upside potential. This is partly the result of people’s lack of awareness of financial instruments such as mutual funds.
Overview of Mutual Funds in Indonesia
A Mutual Fund is an instrument that is used to collect a pool of money from investors to be invested in a portfolio of securities by an independent, professional fund manager in order to maximize returns and diversify risks for investors.
The following types of mutual funds are available in Indonesia:
Money Market Funds They only invest in debt securities whose maturity date is less than a year. Their main target is capital preservation.
Fixed Income Funds These funds invest at least 80% of their assets in debt securities. These funds have a relatively higher risk than money market funds. Their purpose is to produce stable returns.
Equity Funds Mutual funds that invest at least 80% of their assets in equities. Because they invest in stocks, they have higher risks than the previous two types of mutual funds. However, they give higher rate of returns.
Discretionary Funds This type of mutual fund invests in both equities and debts securities.
Islamic Mutual Funds that invest in Shariah-compliant securities are also available.
Schroders, BNP, Mandiri, Bahana and Batavia are some of the leading mutual fund providers in Indonesia.
Advantages of Investing in Mutual Funds
▪ Mutual fund investments allow small investors to invest in and reap the benefits of capital market investments.
▪ Lack of technical knowledge is no longer a hindrance as mutual funds have professional fund managers to manage investments.
▪ Investors can also save on time and efficiency; they do not need to monitor their funds each and every day. There are fund managers who will do it for them.
▪ Finally, even investors with small budgets can go in for diversification and minization of risk.
Tips for Mutual Fund Investments
▪ Visit a good financial advisor and get your risk profiling done. Your risk profile is just an indicator of how much risk you are willing to take.
▪ Plan and choose your mutual fund portfolio in accordance with your risk tolerance and financial goals.
▪ You may have selected good performing funds but you must remember that historical performance does not guarantee future performance which is why you must review and rebalance your portfolio regularly.
▪ Understand that mutual fund investments are subject to market risk, unlike guaranteed return instruments like fixed deposits.
▪ Mutual fund investments are not covered by the deposit insurance program of the Indonesian Deposit Insurance Corporation.
▪ Although you are in relatively safe hands when you invest in mutual funds, you must keep yourself updated about the markets and gain more knowledge about financial markets, instruments and their workings.
▪ Also, take the time to read through the detailed prospectus and understand the fees and charges that are applicable.
▪ A good way of investing in mutual funds is through systematic investment plans where you invest a fixed amount of money (usually through auto debit) monthly for a certain period of time. A number of financial institutions like Citibank offer such plans.
* Data Courtesy: Indonesia Financial Services Authority (OJK)
Investments In Indonesia 