Fixed Income Mutual Funds (RDPT) are one of the investments that are considered quite stable and able to provide regular profits. So it’s not surprising that this investment attracts many people, especially conservative investors.
It's important to learn how Mutual Funds work, but don't forget to understand things related to these investments. One of them is the collective investment contract which will be discussed in the explanation below.
What is a Collective Investment Contract in Mutual Fund Investment?
Before understanding collective investment contract, you should first learn what Fixed Income Mutual Funds are. Thus, you can more easily understand it as a whole.
Collective investment contract or KIK is a letter of agreement agreed between the custodian bank and the Investment Manager that binds the participation unit holders. The Investment Manager who oversees the participation unit holders has the authority to control the collective investment portfolio.
Meanwhile, the authority of the custodian bank is to carry out collective custody. Basic understanding of collective investment contracts will help you get the most out of your investments.
In order to understand better, you can read about the differences between collective investment contracts and conventional Mutual Fund investments below.
- Differences between Conventional Mutual Funds and Collective Investment Contracts
You need to know that collective investment contracts in Mutual Funds are different from conventional Mutual Fund products. The main difference is especially in the limited investment type, which is only intended for professional investors.
The maximum number of investors who can own it is only 50 people. Meanwhile, in conventional RDPT there is no limit to the number of unit holders because all members of the public can own one.
So, broadly speaking, collective investment contracts in Mutual Funds can only be owned by certain people. If you are included in professional investors then you may have it.
After knowing the difference between collective investment contracts and conventional Mutual Funds, next you need to understand what a custodian bank is. Here's the full explanation to read through.
- Duties of Custodian Banks in Collective Investment Contracts
You may already be familiar with the term custodian bank, which is a commercial bank that offers safekeeping services for securities and valuable assets related to securities and other services.
Custodian banks have an important role in managing Mutual Fund investment funds, one of which is to keep a portfolio of securities and several other valuable certificates. That is why before making an investment, you must ensure that the custodian bank chosen by the Investment Manager has received permission and approval from the Financial Services Authority (OJK).
Experienced professional Investment Managers will generally work with licensed custodian banks. To be on the safe side, it's a good idea to check the background of the Investment Manager you are going to choose.
Back to the discussion of custodian banks which have several tasks in the approval of collective investment contracts, including:
- Take care of the Mutual Fund administration process, starting from storing various documents, certificates, and other important assets.
- Carry out administrative processes for each Investment Manager management. For example, recording the sale and purchase of Bonds, stocks, money market and others.
- Carry out the process of sending confirmation letters for sales, purchases, transfers, and reports made by investors.
- In charge of supervising the Investment Manager.
- Manage and store Mutual Fund assets for investors.
From the explanation above, it can be concluded that custodian banks have an important role in collective investment contracts and Mutual Fund investments as a whole. Without understanding it in depth, you may find it difficult to make the right investment decision.
Types of Collective Investment Contracts
In general, collective investment contracts consist of two types, namely limited investment and asset-backed securities. For more details, you can read through to understand the types of collective investment contracts below.
- Limited Participation
The limited participation collective investment contract is a meant to collect investment funds from professional investors. The professional investor is a person who is able to buy participation units and carry out risk analysis on Mutual Fund investments.
Once collected, the Investment Manager will place these funds into a portfolio of securities or portfolios directly related to the project. Examples include the real sector, infrastructure sector, and other sectors.
As the name suggests 'limited inclusion', this unit is only offered to certain people. That means, not all people can invest their money here. Nonetheless, limited investment collective investment contracts have several advantages, such as:
- The management process is carried out professionally by experienced Investment Managers. Starting from micro and macroeconomic matters, determining the period, selecting assets, and other matters.
- The potential profit is quite competitive.
- Managed in a transparent manner, making it easier for you to obtain information about the composition of assets, investment portfolio instruments, and even risks.
The limited investment collective investment contract offer is divided into two types, namely:
- Limited participation collective investment contracts in real sector activities that have hybrid securities in nature and are not offered to the general public. Examples include preferred stock, perpetual debentures, cover debentures, subordinated debentures.
- Limited participation collective investment contracts for special investments issued domestically. Examples include asset-backed securities, money markets, real estate investment funds, and others.
- Asset Backed Securities (EBA)
The next type of collective investment contract is asset-backed securities which portfolio consists of financial assets. Examples include debt securities guaranteed by the government, credit card bills, commercial paper bills, mortgages, and various other financial assets.
This type of collective investment contract generally circulates in the capital market in the form of liquid securities, making them easier to trade. Investors can buy it directly through Investment Managers who manage and issue Mutual Funds through banks or guarantors.
Broadly speaking, this type of collective investment contract has several advantages, such as:
- Can be used as an alternative investment for securities that have the best rating, long tenor, and minimal risk.
- Investors can gain attractive potential returns or profits.
- Can contribute directly to developing the real sector in general.
- The required investment funds are relatively lower.
- Capital is used more effectively and efficiently.
That was the explanation of the two types of collective investment contracts that you should consider. By understanding the types, you can determine the right investment step for the future.
Benefits and Advantages of Collective Investment Contracts
The collective investment contract in the RDPT is an agreement in which it certainly has benefits. Here are some of the benefits of collective investment contracts that you should know about:
- Sources of Funding and Liquidity
Collective investment contracts are not only a source of financing and liquidity for large companies. But also small-scale companies and non-investment companies. Thus, newly developed startups will no longer experience problems with loans.
- More Efficient in Capital Utilization
With the existence of an EBA collective investment contract, a company's balance sheet structure can improve. Because it can encourage companies to be more careful in using capital.
- Relatively Low Cost
Companies that issue EBA collective investment contracts tend to incur lower costs as the rating of the quality of their receivables improves. This makes the supply of cash flow more stable, meaning that the rate of return is more guaranteed.
Not only that, collective investment contracts also have several advantages, including:
- Investor funds collected will be distributed to the real development sector. That means investors contribute directly in developing the real sector in Indonesia.
- Investors will gain competitive profit.
- One of the alternatives for investors who wish to invest through securities.
After reading the above, are you interested in investing through collective investment contracts? Before deciding, it's a good idea to find the right partner to manage the assets you have.
Fixed Income Mutual Fund Investment in DBS Treasures
Are you looking for a trusted wealth management partner? DBS Treasures can be the right choice in realizing future financial plans. You will be supported so that you can confidently make accurate investment decisions at the right time to gain maximum results.
By becoming a priority banking customer, you can more easily make the right investment decisions. Because DBS Treasures will provide support by communicating the results of market analysis and the latest investment opportunities.
There are several advantages to becoming a DBS Treasures priority banking customer, such as:
- Managed by Professional Investment Managers
You don't need to hesitate because the Mutual Fund investment will be managed by experienced, professional Investment Managers. Which can optimize the performance of Mutual Funds in order to generate the maximum possible profit.
- Insights and Information on Investment
Not only that, later you will also receive information from a team of financial experts who will support you in determining the right investment steps. They will share the latest market and opportunity analysis results to support you in maximizing profits.
- Diversification to Minimize Risk
Not only Mutual Funds, but there are also many investment options that can be used as an alternative for diversification, one of which is Bonds. By distributing funds to several types of investments you can effectively minimize investment risk.
- Experience Convenience in Investing
You can make various investment transactions easily and quickly through your smartphone. With the digibank by DBS Application you can buy and sell Mutual Funds, switch investments, register for SID (Single Investor Identification) and other transactions in a flexible and time efficient manner.
Priority banking customers will be supported by curated market analysis results from a team of experienced financial experts. You will also receive up-to-date opportunities that are customized based on your risk profile and portfolio needs.
This advantage is driven by Artificial Intelligence/Machine Learning (AI-ML) which is equipped with curated solutions related to investment (Grow) and insurance (Protect). So that it will support you more quickly and confidently in taking investment steps according to your preferences.
Are you interested in investing in Fixed Income Mutual Funds? Register yourself as a DBS Treasures customer now to gain all these conveniences. To find out more details about Mutual Fund investments, please click the following link https://www.dbs.id/id/treasures/investasi/mutual-funds/what-is-mutual-funds-and-equities.
