According to Hamdi, the director of PT Bursa Efek Indonesia (BEI), in 2017 the participation of local investors in the capital market in Indonesia is still low as many as 535.994. In fact, Indonesia has 250 million inhabitants. This means the number of local investors does not even reach 1% from total Indonesian population. Whereas, local investors’ participation in the capital market is crucial for Indonesia’s economic development. Therefore, it is necessary to understand the main products in the capital market. There are three main products of capital market which are equity share, bond, and mutual fund. The next following paragraph will explain the detail of those products.
The first product is equity shares, equity shares is a common stock published by the company to investors who are referred as to shareholders (Parameswaran, 2011). In owning a share you will have two benefits. The first one is dividend, which allows you to receive any profits that the company allocates to its owners, The second is capital gain, which is obtained when you sell your share or stock higher from the original price when you bought it. However, one thing that must be remembered is the more the return comes to the investor, the more the risk they could have.
The second product is bond, bond is a certificate issued by a government or a public company promising to repay borrowed money at a fixed rate of interest at a specified time (Burroughs, 2011). For example, if you bought $5.000 bonds, you will receive $5.000 bonds in return when the bond is already paid off. Meanwhile, you could get the interest payments every time the government pays the bonds, usually twice per year. Bonds are different from stock. In contrast, if we invest our money in stocks, we have to be focused on the value of the share. On the other hand, bonds are not concerned with the increases or decreases of its price. The investors ought to concentrate the income they earn in form of interest.
In addition, interest is the most valuable part of bonds. In buying the bonds, the company or government entities have an agreement to determine the time range of the payment. The repay range from short-term(up to 5 years) to intermediate-term( from 7 up to 10 years) to long-term(20 up to 30 years). And, those rates of interest are usually higher from savings and certificate of deposit.
Even with the interest rate generally higher from your bank account, bonds should not give you a significant number for your long-term investment. Generally speaking the interest rate on bonds are lower than investing in stock, which is 8-11% on average per year. Bonds are considered safer investment than stock since stocks can fluctuate greatly day by day, but bonds tend to stay stable and do not forget you will receive interest.
The third product is mutual funds.In 2009, Brennan and O'Neil argued that “ Mutual funds are a portfolio of stocks, bonds, or other securities that are collectively owned by thousands of investors and managed by a professional investment company. The shareholders are people who have similar investment goals”. Mutual funds have less risk and required smaller budget than investing in stock or bond.
As a result, in order to increase the number of local investors, people have to understand any risks and conditions so they will not lead to any losses. Therefore, it is necessary to know and understand the products of stock market and choose the most suitable product.
References
Brennan, P., & O'Neill, B. (2009). Money talk. Ithaca, NY: Natural Resource, Agriculture, and Engineering Service, Cooperative Extension.
Burroughs, A. (2011). Stocks, Bonds, & Mutual Fund.What’s the Difference?. Retrieved 28 March 2017, from
