Tuesday 31 March 2015

Indonesia's Mutual Fund Industry targets will be hard to meet: Cerulli

Cerulli sees OJK's moves as positive for the mutual fund landscape in the country. While the 2017 targets will be hard to meet, working toward them will certainly be beneficial for the industry in the long run. 


Indonesia has set bold targets for its mutual fund industry-seven million investors and assets under management (AUM) of IDR1 quadrillion (US$75.5 billion) by 2017.

On the surface, these seem to be realistic targets. Indonesia has the fourth-largest population in the world and has a strongly growing middle class. However, beneath these headline numbers, there is more sobering data.

Out of a population of 250 million, fewer than 300,000 are mutual fund investors. Further, mutual fund industry data suggest that the industry is largely dominated by institutional investors and high-net-worth individuals (HNWIs). This is because, with total AUM of about IDR231.4 trillion at end-2014, each investor holds an average of IDR0.9 billion (US$69,000) of mutual funds.

To achieve its targets, Indonesia's Financial Services Authority (OJK) has introduced, or is expected to introduce, initiatives that promote mutual funds to the mass retail public.

These include lowering minimum investment levels to help lower-income investors enter the market, as well as actively pushing for mutual fund road shows in office buildings, shopping centers, and universities. OJK has also begun to loosen restrictions on overseas investments for mutual funds (currently capped at 15% of a portfolio), and the initiative will start with Shariah-compliant funds.

Cerulli reckons it will be a challenging task for Indonesia to meet its targets by 2017. Indonesians have been spoiled by the high interest rates offered by savings accounts in banks. Even HNWIs put the bulk of their money in savings accounts. The key challenge will therefore be to change this mindset-that is, to convert savers to investors.

Nonetheless, Cerulli sees OJK's moves as positive for the mutual fund landscape in the country. While the 2017 targets will be hard to meet, working toward them will certainly be beneficial for the industry in the long run. 

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