Education

Under the law of the Republic of Indonesia year 1995 concerning Capital Markets, the definition of Mutual Fund is, "a vehicle used by an Investment Manager to gather funds from the public for investment in a Securities Portfolio".

Buying mutual funds allows individual investors with limited capital to invest in diverse instruments such as equities, bonds, and many others. Investors are also worry-free of having difficulties in analyzing the performance.

We are proud to support Financial Services Authority of Indonesia (OJK) as an investment supervisory body in their campaign to promote campaigns for Mutual Funds.

Check out videos about Mutual Funds presented by OJK; aiming to introduce Mutual Funds using everyday language, making it easier to understand.

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Under the law of the Republic of Indonesia Clause 1 of Article 18 concerning Capital Markets, the legal form of Mutual Funds are as follows:

• Mutual Fund in Corporate Form: "The business of an Investment Fund in corporate form is investing the proceeds of the sale of its shares in Securities traded on the Capital and the money markets" (Description of Article 18 Clause 1a),
• Mutual Fund in a Collective Investment Contract Form: A Collective Investment Contract is "an agreement between an Investment Manager and a Custodian Bank that binds participating unit-holders and that authorizes the Investment Manager to manage the collective investment portfolio and the Custodian Bank to provide Collective Custody services" (Description of Article 18 Clause 1b).

Other than the legal form, Mutual Fund can also be categorized into 2 types: Open-Ended Fund and Closed-Ended Fund. The differences are:

• Open-Ended Fund: This type of Mutual Funds offer to sell and re-purchases shares from investors up to its authorized capital based on the Net Asset Value per unit. Further explanation on Net Asset Value will be covered in the Fund Performance section.
• Closed-Ended Fund: This type of Mutual Funds does not repurchase shares from its shareholders; investors will sell it directly through stock exchange. The pricing itself is determined by the supply and demand in the market.

Below are the mechanism of Mutual Fund activities:

Investors will buy (make a subscription) Mutual Funds through an Investment Manager by placing their capital in a Custodian Bank.

Investment Manager will manage the funds by buying/selling investment instruments, such as equities, bonds, or money market based on the type of Mutual Fund that the Investor has subscribed.

The buying/selling activities made by the Investment Manager will be executed through an investment broker.

If an investor wants to sell (redeem) the unit, the Investment Manager will instruct a payment order to the Custodian Bank.

Then, the Custodian Bank will transfer the valid redemption amount to the investor.

Investment Manager

A party that, as a business, manages Securities Portfolios for clients or manages collective investment portfolios for a group of clients; other than an insurance company, pension fund, and bank with respect to its own lawful activities.

The Scope of Investment Manager:

• Manages securities portfolios in respect of the customers,
• Manages mutual funds,
• Conducts research on securities,
• Analyze the investment feasibility study.

Custodian Bank

"A person who provides safekeeping services with respect to Securities and Securities-related assets and other services, including collection of dividends, interest, and other entitlements, the settlement of Securities Transactions, and agency services for clients who are account holders."

Those who act as a Custodian are:

• The Securities Depository and Settlement Institution (LPP: Lembaga Penyimpanan & Penyelesaian)
• Securities Company
• Commercial Bank

Scope of Custodian Bank:

• Provides collective safekeeping and custodian services
• NAV calculation on daily basis
• Pays for any cost incurred related to the mutual funds pas instructed by the Investment Manager
• Keeps a separate record of the Unit Holder
• Have their own provisions on bookkeeping and reportings

Conventional Mutual Funds (Based on Bapepam Regulation No. IV C.3)

Money Market Funds:

"This Mutual Fund only invests on debt securities, which maturity date is less than a year".

The investment is allocated mainly in money market instruments with short term investment period.

Fixed Income Funds:

"This Mutual Fund invests at least 80% of its assets in debt securities".

The investment is allocated to instruments that provide relatively stable income.

Equity Funds:

"This Mutual Fund invests at least 80% of its assets in equities".

The purpose is to have a long term capital gain.

Balanced Funds:

"This Mutual Fund invests in both equities and debt securities with different proportion from what is stipulated on point b and c above."

The purpose is to diversify the investment with balanced instruments between equities and debt securities.

Structured Funds (Based on Bapepam Regulation No. IV C.4)

Capital Protected Funds:

Provides protection on the initial investment by managing the investment portfolios upon maturity date, investing in debt securities with good investment grade.

Guaranteed Funds

Provides a guarantee towards the initial investment upon maturity date.

Protection is provided by the Investment Manager through a third party assurance, such as banks, isurance, etc.

Investing on debt securities with good investment grade at least 80% of the NAV.

Index Funds

A Mutual Fund with a portfolio constructed to match or track the components of a market index as the benchmark, at least 80% of the NAV is invested on the instruments of a market index.

The proportion of each instruments starts between 80% up to 120%.

General Risks:

• Politic, Law, Economy, Changes on Political & Government Regulations that might impact the performance of the company listed in the portfolio of the Mutual Fund
• Recent development
• Sectoral

Investment Risks:

• Decreased value of the participating unit
• Changes on the foreign exchange rate

Operationl Risks:

• Liquidity
• Reselling unit based on the liquidity of the portfolio or the capability of the Investment Manager to buy the unit and provide immediate cash payment.
• Risk of Insurance Costs for the Mutual Fund Assets

Insurance coverage on the total assets of the Mutual Fund in the Custodian Bank. Some of the unwanted risks are: default risk by one of the related party (Custodian Bank, brokers), natural disaster, fire, riots that may impact the NAV.

A Prospectus is written information that is intended to induce another Person to buy Securities in a Public Offering

Mutual Fund Summary in a Prospectus describes:

• Risk Factors
• Information on the operational activity of the Mutual Fund
• Details of the participating unit, including the offering price
• The maximum and minimum limit for subscription
• Statement of Investment Policy

Mutual Fund Information contains:

• Financial Statement
• Operational cost details
• Mutual Fund History
• Management
• Payment term of the participating unit
• Mutual Fund Establishment
• Initial Placement
• Mutual Fund Summary
• Glossary
• Mutual Fund information, for example: Asset Management and Custodian Bank professional experience
• Objective and Investment Policy
• Taxation
• Risk Factors
• Investor's rights
• Financial Statement & Legal Advice
• Subscription, Top Up, and Redemption Scheme & Procedure
• Liquidation Procedure

Mutual Fund has various benefits which make it as one of the most attractive investment option.

Managed by professional management

The portfolio of a Mutual Fund is managed by an Investment Manager with professional expertise in managing funds. The Investment Manager has a very crucial role considering most of the individual investors do not have time to conduct market research and evaluation, nor that they have the information access to the stock market.

Investment Diversification

Diversification in an investment portfolio will reduce the risk (but not eliminate it), as the assets are invested on diverse instruments; hence spreading the risk itself. In other words, the risk is lower compared to a case if someone buys one or two instruments individually.

Transparent Information

It is mandatory for Mutual Fund to provide regular update of the portfolio and the costs so that all Unit Holders are able to monitor their returns, costs and risks at any given time. Investment Manager is required to publish the Net Asset Value on a daily basis in newspaper, as well as to publish the financial report semi-annually and annually along with the prospectus in a timely manner. Hence, investors will have the access to monitor their investments regularly.

High Liquidity

In order to have a good gain, every instruments invested should have high liquidity rate. Hence, investors can redeem their participating units anytime as regulated by each Mutual Fund, making it easier for investors to managed their cash. Open-ended funds are bound to buy back the Participating Units, which is why they are liquid.

Low Cost

Mutual Fund is a collective capital from a number of investors which then is being managed professionally. The bigger the assets will result in more efficiency on the transaction cost.

Lower transaction cost if we compare it with individual transaction cost done by individual investor in the stock exchange.

Before we understand Fund Performance, we should be familiar first with the term Net Asset Value and Participating Unit.

Net asset value is the fair market value of the Securities portfolio and other assets of a Fund, less the liabilities of the Fund.

Net asset value per unit is the total net asset value divided by the total participating units owned by all unit holders of the portfolio. The NAV per unit is published on a newspaper every trading day. It serves as an indicator defining both buying and selling price of each participating unit of the Mutual Fund. The fluctuation of the NAV may indicate the fund performance, whether the value is positive (increasing) or negative (decreasing).

Participating Unit is a measurement in a collective investment portfolio to define the portion of each party involved.

To calculate your investment returns in Mutual Fund, substract the redemption NAV with the subscription NAV. Then, multiply the result by the total participating unit that you have.

KSEI AKSes Facility is an information access facility through internet network provided for investor to monitor position and mutation of Securities owned and kept in Sub Securities Account in KSEI where investor is registered as client. KSEI collects no fee either to the Account Holder or investor.

The benefits of KSEI AKSes Facility to investor are as follow:

• Investor can have real-time access to Securities ownership data and its mutation in Sub Securities Account kept in KSEI system (C-BEST) up to the last 30 days.
• It gives easiness to investor to conduct report consolidation of other owned portfolios spread out in several Securities Companies or Custodian Bank.
• It improves the trust and sense of security to investor to invest in capital market by opening Sub Securities Account which can be directly monitored by investor himself.
• It provides additional information required by investor transparently in Indonesia capital market.

The benefits of KSEI AKSes Facility to Account Holder are as follow:

• It provides accountable information in connection with provisions prevailing to investor as the client.
• It serves as communication tool in directly delivering and presenting information in form of inquiry or report with accurate data to the clients.
• It reduces costs of communication, printing, and delivery of report.
• It enables further and more specific development based on Account Holder’s needs in term of better communication tool between Account Holder and its clients.

The application of KSEI AKSes Facility can be forwarded only by investor who already has Sub Securities Account in KSEI. By having such Sub Securities Account, investor is entitled to ask for KSEI AKSes Facility, and Securities Company or Custodian Bank, pursuant to Bapepam-LK letter Number S-4882/BL/2009 dated June 8, 2009, must respond to such request.