New Bapepam-LK Guidelines for Mutual Funds

Bapepam-LK Decree No. Kep-552/BL/2010 on Guidelines for the Management of Mutual Fund Collective Investment Contracts (“Decree”) has been issued to promote flexibility and caution in portfolio composition, and to encourage growth of the Indonesian Capital Market. The Decree revises Rule IV.B.1.

Pursuant to Items 14 (a) (2) and 15 (which specifies the types of investments mutual funds can make), fund flexibility will be encouraged by allowing mutual funds to invest in certain securities issued or traded abroad, in a larger portion than the 15% limit that Item 14 (b) sets out, and by treating these in a like manner to their domestic counterparts. Specifically, the 85% domestic investment requirement (as set out in Item 14 (a)) can include debt securities that are traded abroad as long as they are issued by:

Greater caution will be engendered by requiring certain terms within collective investment contracts (CIC), and by imposing a number of obligations on both investment managers (IM), in Item 8 (a), and custodian banks (CB), in Item 8 (b).

As per Item 8, the CIC must explicitly assign the rights and responsibilities between the IM and the CB. Further, as per Items 25 and 26, unless there are no unit holders, any amendment to the CIC must be submitted to Bapepam-LK and announced publically through a daily newspaper with national circulation within 2 working days.

Pursuant to Item 8 (a) (1) mutual fund IMs have to meet their published investment policy within 120 days of possessing an effective registration statement, and, pursuant to Article 2, existing mutual funds have to comply with this requirement within a year (by 30 December 2010).

As per Item 7, the IM must carry out their duties in good faith, and solely for the benefit of the mutual fund; and will be liable for any loss arising from a failure to do so. Additionally, among other things, Item 16 prohibits the IM from taking certain actions that might reduce the domestic nature of the CIC, engaging in short sales, or margin transactions.

As per Item 8 (b) (8) and 13, the CB is obligated to refuse instructions from the IM if such instructions clearly violate capital market regulations or the CIC; additionally, the CB and the IM cannot be affiliated.

More specifically, the Decree further addresses minimum fund requirements and dissolution, various reporting and notification requirements, fund unit sales, allocation of costs, and other related matters. 

The Decree revokes Bapepam-LK Decrees No. Kep-427/BL/2007 and No. Kep-176/BL/2008 on the same subject matter.

The Decree has been in force since 30 December 2010.