Mutual Funds: Definition, Risk Benefits, Taxes and Fundamental Analysis

One of the most promising things you can do to improve your financial situation is to invest. Especially for those of you who are young, energetic and successful. Therefore, investment must start early. 

Definition of Mutual Funds

Anyone looking to start investing today has access to a wide range of investment products, including stocks, bonds, deposits, gold or other precious metals, real estate, insurance, and mutual funds. When it comes to mutual funds, this type of investment is one of the most popular, easy to understand, and suitable for novice investors. 

Let's explore the meaning of mutual funds in more detail before discussing the advantages they provide.

Mutual Fund Definition

In general, mutual funds are defined as a place where through this instrument the general public can raise funds which are then managed by an organization called an Investment Manager and invested in securities such as stocks, bonds and money market instruments.

The legal structure of Mutual Funds can be in the form of a company or collective investment contract (KIK). In addition, there are two types of mutual funds: closed mutual funds and open mutual funds. The most advanced mutual funds in Indonesia today are those that comply with the Collective Investment Contract (KIK) law and are open in nature.

Open-ended funds are funds that are always available for buying and selling on exchange days.

Types of Mutual Funds

1. Money Market Mutual Funds (Money Market Fund)

A money market fund is a specific type of mutual fund that invests in short-term financial securities.

Investment instruments are available in various shapes and sizes, including time deposits, certificates of deposit, Bank Indonesia Certificates (SBI), Money Market Securities (SBPU), and other money market investment products.

The goal is to maintain capital and liquidity. Compared to other forms of mutual funds, the risk is relatively the lowest.

2. Fixed income mutual funds (Fixed Income Fund)

A fixed income fund is a particular type of mutual fund that returns at least 80% of its investment in bonds or other debt instruments.

A consistent rate of return is desired. Comparatively, the risk is higher than money market mutual funds.

3. Mixed mutual funds

The class of mutual funds known as mixed funds distribute their investment capital among several portfolios. Investment vehicles can be stocks or include bonds.

Price and revenue growth is the goal. Comparing mixed funds to fixed income funds, the risk is lower but the potential returns are potentially higher.

4. Equity Funds

This type is a particular type of mutual fund known as an equity fund that invests at least 80% of its assets in equity securities.

The long term goal is to increase the share or unit price. Compared to money market and fixed income mutual funds, the risk is slightly higher, but the potential return is the highest.

Benefits and Risks of Investing in Mutual Funds

Investing in mutual funds offers a variety of profit prospects. Investors in mutual funds can diversify their holdings without requiring a lot of capital. For example, a limited money investor might have a portfolio of bonds, which would be impractical without a large fund.

A number of mutual fund products are available on the Bareksa marketplace for purchases with only IDR 100.000 in capital. In addition, there are items that cost a minimum of IDR 50.000. Check out the products available here.

A large amount of money will be raised through mutual funds so that investment managers can diversify their investment options in the stock market and money market. In other words, investments are made in different investment assets including stocks, bonds and deposits according to the management style of each type of mutual fund. Even the layman can take advantage of the sweet rewards of investing in the stock market thanks to mutual funds. 

Finding good stocks to pool in is just as difficult as choosing good companies to invest in. Not many investors have the necessary special knowledge and experience for this.

Investors can avoid the hassle of tracking their investment performance by investing in mutual funds. This is because experienced professional investment managers have taken care of this. Mutual funds, like other investment platforms, have a variety of profit potential and various risk opportunities.

Risk in mutual funds certainly exists where the risk is lower associated with the value of the investment unit, for example. Investment managers (as managers) with the principle of diversification can reduce the risk caused by a decrease in the price of stocks, bonds or other securities that are part of the mutual fund portfolio.

Liquidity risk, on the other hand, is the risk associated with the challenges faced by investment managers if a large proportion of mutual fund investors resell units. It may be difficult for investment managers to provide funds for redemption under such circumstances.

How Mutual Funds Work

How does mutual fund investing work? Investors can use the application to make investment transactions online. Next, set aside a certain amount of money for investment. Here is a detailed explanation of how mutual funds operate.

Investment Manager

You can immediately start the process of buying mutual funds after choosing the ideal investment manager. In this situation, you can modify a sizable investment fund according to your financial resources. In addition, mutual fund products can be purchased starting from 10.000. You can buy this investment product practically, easily and safely through the mutual fund investment service application. 

To facilitate transactions for investors, Mutual Fund Selling Agents (APERD) also provide various payment options via bank transfers or different virtual accounts. Investors can direct their funds to investment managers by making transactions to buy mutual fund products. The allocation of this money will then be controlled by the investment manager. The performance of investment funds is available to investors.

After completing an investment transaction, the investment manager will channel your funds to various securities sectors according to the type of investment requested by investors. Fund Fact Sheets (FFS) or Mutual Fund Fact Sheets allow you to see the allocation of funds invested and how they are used. With the help of this file, you can also learn the best algos for certain money and energy related products for one month, three months, six months and one year. 3 years, 5 years, for working period after mutual fund product launch.

Money market mutual fund product investment managers distribute investment funds among securities with maturities of less than one year, including time deposits, certificates of deposit, Bank Indonesia certificates (SBI), money market securities (SBPU), and so on. Fund managers invest a minimum of 80% of assets in bonds or other debt instruments when creating this type of fixed income income. Dividend bonds are another option available to buyers of this investment product from a variety of bond types.

In addition, mixed mutual funds prefer stocks and bonds over other types of securities instruments. There are 0–20% money market securities, 1–79% bonds or debentures, and 1–79% equity in this investment product. The investment manager distributes a minimum of 80% of assets in the form of equity securities in equity fund instruments. The rest of the allotment is usually invested in money market securities.

Custodian

Banks that manage mutual fund investment money and maintain portfolios of securities and other valuable certificates are known as custodian banks. Custodian institutions are required to apply for a permit to the Financial Services Authority (OJK) to operate in order to carry out their duties.

In fact, the Indonesian Central Securities Depository (KSEI) controls and supervises custodian banks. KSEI is a Depository and Settlement Institution (LPP) that regulates and stipulates securities portfolio depository policies for use by bank general custodians in the Indonesian capital market. In addition, commercial banks that have obtained OJK approval can turn into custodian banks. You can see a list of custodian banks on the OJK website if you're interested in finding out.

The main responsibility of a custodian bank is to perform administrative tasks. The custodian's job is to protect the money investors have invested in securities and other assets. This shows that the custodian institution accommodates all mutual fund assets owned by investors.

1. Submit mutual fund customer portfolios along with documents related to the assets concerned.
2. Recording of purchases and sales of securities, bonds, money market investments, deposits, and other transactions involving investment manager mutual fund assets.
3. Daily NAV calculation for mutual funds managed by investment managers.
4. Sending mutual fund purchase confirmation messages to consumers who have completed transactions such as transfers, purchases, and sales.

Custodian banks are tasked with maintaining customer securities and documenting and recording every change in ownership of these securities. In addition, the custodian bank is tasked with handling profits received from issuers, selling securities, and transferring ownership of securities to its clients.

Depository

In accordance with the cooperation agreement with the Investment Manager in charge of the Mutual Funds, the Mutual Funds Selling Agent is responsible for selling the Mutual Funds. APERD can be a bank, securities company, pawnshop, insurance company, or a special business that sells online mutual funds such as Bareksa.

Except for securities companies, mutual fund selling agents must first obtain a Certificate of Registration as Mutual Funds Selling Agent from OJK before they can sell mutual funds.

Only workers who have obtained a license as a Securities Company Representative or Mutual Fund Selling Agent Representative (WAPERD) may sell mutual funds on behalf of a mutual fund selling agent. A unique assignment must be assigned to the employee by the Selling Agent of the Mutual Funds operating on his behalf.

Participation Unit Sales

Participation units are units that represent investors' ownership in their mutual funds. The number of units required to participate in a mutual fund is determined by the investment manager. The number of investment units can be changed by the investment manager.

Participation Units—or lots, if ownership is expressed in the form of shares—serve as a benchmark for the percentage of mutual funds owned.

Therefore, the units used in investing in mutual funds are units of mutual fund participation. This unit of participation is included in our mutual fund holdings. One sign that a lot of people buy or like mutual funds is the number of units available for the fund. However, this does not guarantee the success of the mutual fund.

In addition, mutual funds have a fee, which is known as Net Asset Value Per Participation Unit (NAB/UP). Just like when buying rujak, we have to ask the price per serving.

Mutual fund prices are initially set at IDR 1.000 per unit when new mutual funds are introduced and are subject to change depending on the performance of the mutual funds. In addition, the Custodian Bank determines the price of these mutual funds every trading day. For example, we want to invest IDR 100.000 in a mutual fund. Assuming the NAV/UP of the mutual fund today is IDR 1.000, then we will receive 100 units of participation.

Mutual Fund Fees and Fees

Investors in mutual funds can be charged basically three different fees. Purchase fees (subscription fees), sales (redemption fees), and sales (switching charges) are represented by these three fees. In money market mutual fund products, some investment managers usually do not charge trading commissions.

Investment management companies charge various buying and selling fees for mutual fund products that are not money market mutual funds. However, the fee range usually falls between 0% and a maximum of 5%.

However, if an investor has owned a mutual fund product for a certain period of time, some investment managers will waive a selling fee. If the owner of a unit of mutual fund participation has owned the product for more than six months or one year, the investment manager usually waives the selling fee.

One way to educate the general public to become long-term investors is to sell mutual funds for free after a certain period of time. People who invest for the long term will benefit more from mutual fund products.

There is a fee for switching (selling) between mutual fund products within the same investment manager company in addition to a fee for buying and selling. If you wish to convert from an equity fund managed by investment management company A to a mixed fund managed by the same business, you must pay this affected fee.

These fees appear to differ between investment managers. However, the range is between 0 and 2 percent.

Jenis-type of Mutual Fund

There are several types of mutual funds, including:

Stock Mutual Funds

Among the various types of mutual funds, equity funds have the highest yield potential. Equity funds have returned an average of 18 percent annually over the past ten years, according to the industry.

Fund managers diversify their holdings of shares of their clients' money. When investing in equity mutual funds, the term must be more than five years due to the high level of risk associated with fluctuations in stock prices. 

Stock mutual funds can be used to save for retirement in the next 20 years, as well as college costs for children of 15 years. Don't invest it in a stock fund to avoid having to make a down payment on the house within 6 months. Equity mutual funds took roughly two years to recover after the 1998 and 2008 financial crises.

Bond mutual funds

Bond mutual funds contain corporate and government bonds. Compared to stock mutual funds and mixed mutual funds, the risk of these mutual funds is smaller. Bond funds are the best choice for needs and goals with a maturity of less than three years.

Mixed Mutual Funds

Mixed mutual funds are mutual funds that contain a combined portfolio of stocks and bonds. The quantity varies depending on the product. You can use this joint dividend to meet your financial needs for long-term investment. Returns are also unreliable and carry a higher risk than cash. Medium-term requests that have lasted more than three years can be ended with mixed funds.

Money Market Mutual Funds

Cash or maturing bonds are included in money market mutual funds. The yield is somewhat higher than deposits. Money market funds carry the lowest risk of all mutual funds, making them the safest. Suitable for short term investment under one year. Low yields make money market funds unsuitable for long-term purposes such as retirement funds because investment funds also do not grow.

ETF mutual funds

ETFs are in the form of collective contracts, and both traders and their participating units are listed on the exchange. Issuer shares traded on the stock market form a portfolio of equity funds. Unlike ETF portfolios, which are made up of the equity of index members. As a result, if a shareholder purchases an ETF, such as an LQ 45, he or she already owns 45 of the stocks listed in the LQ 45 index. The price of the ETF and the operating hours of the exchange are both displayed. ETF prices fluctuate like stock prices.

Benefits of Investing in Mutual Funds

Portfolio Diversification

Portfolio diversification is the main benefit of investing in mutual funds. As an illustration, a shareholder can buy shares in the financial sector while buying a number of other shares in the agricultural sector. Investors will benefit from reduced market turbulence and reduced portfolio losses as a result. 

Mutual funds also provide direct allocation and diversification without imposing significant costs. You can invest in debt products such as money market instruments, corporate bonds, and government bonds through debt funds. In addition, there are mixed mutual funds that provide exposure to both debt and equity instruments.

Investment with Small Capital

Small amounts of money can be used to start investing in stock mutual funds. There are several stock mutual fund products currently available, and you can buy them starting from IDR 500.000. In addition, a number of equity mutual funds are available for purchase starting from a nominal value of IDR 100.000.

Naturally, anyone can now buy stock mutual funds as a substitute for conventional investments thanks to their low fees. Alternatively, if you prefer something more rewarding, you can also buy mutual funds online.

High Liquidity

The ease of putting money in and withdrawing it from the mutual fund is another advantage. Investors can quickly sell their mutual funds without having to consider the difference between the selling price and the current market value.

Professional Management

Financial skills are required for investment activities. Investment success depends on consistently conducted market research across various businesses and industries. You need a professional to manage your financial portfolio if you want to be successful in investing. 

Financial managers in Indonesia have earned the Investment Manager Representative credentials as well as/or the global qualification known as a Certified Financial Analyst (CFA), which gives them an understanding of the world of finance.

Attractive Profit Potential

Currently there are no regulations governing the taxation of mutual fund products. so that you can benefit from this investment without paying any taxes at all. However, some investment managers charge their clients a discount in lieu of fees.

Investment Risks in Mutual Funds

Market Risk

Capital market trends impact different types of mutual funds. You can hardly avoid this risk. When the stock market is bearish, mutual fund values ​​can also go down, and vice versa. You must be prepared to face this risk because it can happen at any time.

Investment Management Risk

This risk, which arises when the investment manager's business partner violates their agreement, is also known as credit or default risk. Issuers, brokers, custodian banks, and mutual fund selling agents selected by investment managers are just a few examples of business partners.

For example, PT ABCD bonds, which are debt instruments, are included in mutual fund products and pay regular interest or coupons. However, there is a possibility that PT ABCD will not be able to pay coupons for a while, and there is also a possibility that the principal will not be paid. There is no doubt that this has an impact on the performance of mutual funds.

Liquidity Risk

Liquidity related to distribution of mutual funds. This risk develops when investment managers are late in providing funds to cover investor repayments. However, the investment manager must pay the funds in the form of disbursement within a maximum of seven working days (Saturdays, Sundays and holidays are not included in this calculation).

Inflation Risk

The potential risk associated with investing in mutual funds is the danger of inflation. Due to the increase in consumer goods, you will be less able to finance mutual funds.

Exchange Rate Risk

The value of investments made in mutual funds may change due to changes in (i) the exchange rate between the Indonesian rupiah and other currencies, and (ii) interest rates between Rupiah-denominated and non-Rupiah investments, which in turn affect the mutual fund's net asset value.

Investment Analysis in Mutual Funds

Fundamental Analysis of Mutual Funds

This method is more influenced by several variables which are all interconnected, especially in the case of stocks. Information about this essential study is easy to find in various mass media, both print, electronic and other media.

Mutual Fund Technical Analysis

It is important to track stock price fluctuations when using this strategy. This is due to the fact that trends will develop as a result of each price change that occurs. Price changes can be predicted with this technique, which can help decision making.

Factors Affecting Mutual Fund Prices

While mutual fund prices are easy to find, there's no way of knowing how high they will go up when the order you buy is placed. After you buy, you will study the next day. Buying exchange traded mutual funds is the only method of achieving your desired price.

Short Term Mutual Fund Investment Strategy

The Lump Sum Strategy can be an option for implementing a short-term strategy in investing in mutual funds. Meanwhile, this mutual fund investment strategy will be the best choice for those of you who don't have a reliable source of income.

In the lump sum strategy, all investment funds—say, a certain amount, such as Rp. 10 million—paid at once, with no subsequent additions.

This kind of lump-buying is quite safe and efficient because it can generate the greatest returns, especially if the market performs favorably in the short or medium term. For those of you who are straightforward and don't want to bother investing in stages, this approach is right.

Long Term Mutual Fund Investment Strategy

For long term profits you can use the Buy and Hold strategy and Dollar-Cost Averaging. First, the Buy and Hold investment strategy for mutual funds is a favorite of passive investors. They are known as passive investors because, after making their initial investment, they will do nothing for a long time.

There is no need to monitor changes in market prices because, in most cases, investments just continue to acquire value and generate significant returns when the money is held for a sufficiently long time. Of course, this investment tactic requires self-control and patience.

To reduce the risk of loss, investors who choose the buy and hold approach usually hold their investment assets for at least 15 years. One of the simplest and safest investment methods, especially for beginners, is buy and hold.

Then invest in dollar-cost averaging, a practical investment method for mutual funds, in which the investor equally divides the total amount of money to be invested across repeat purchases. This method is similar to the installment plan, which is saving or paying the same amount of money over time, usually once a month.

For investors looking to safely make their investments even if stock prices fluctuate, dollar cost averaging is a viable technique. If you want to invest in long-term mutual funds to maximize profits, this technique is more appropriate.

Investment Taxes and Regulations in Mutual Funds

Investment Tax in Mutual Funds

It should be understood that a mutual fund is a place to collect public funds managed by a legal entity called an Investment Manager, which will later be invested in securities such as stocks, bonds and money market instruments.

Unlike other investments such as property and precious metals, mutual funds and their profits are not taxed. So it is certain that investors will not be taxed in investing in this mutual fund because the tax is borne by the Investment Manager (MI) who runs it.

Investment Regulations in Mutual Funds in Indonesia

The Financial Services Authority (OJK) oversees all financial activities in Indonesia. OJK is responsible for monitoring, evaluating and scrutinizing the state financial system as an independent authority. OJK is also authorized to control these financial transactions. The OJK is actually in charge of Indonesian mutual fund regulations. This means, to run a business legally, mutual fund investment service providers must register with the OJK.

Once registered, of course, OJK will continue to monitor and supervise the company. This is done to ensure that mutual fund provider companies operate according to regulations or regulations that apply in that country. On the other hand, this can also help so that companies providing mutual funds are not careless to their investors.

Therefore, before investing in mutual funds, make sure you choose a provider company that has been officially registered and supervised by the OJK.

Investment Tax in Overseas Mutual Funds

Based on Article 4 paragraph (1) letter d of the Income Tax Law (UU Number 36 of 2008), income is defined as additional economic capacity received or accrued by a Taxpayer, both inside and outside Indonesia, and can be used for consumption or to increase the wealth of the Taxpayer concerned, in any name or in any form.

Taxpayers add their foreign income to their domestic income when calculating their taxable income. This is further regulated in Minister of Finance Regulation Number 192/PMK.03/2018 concerning Foreign Tax Credits to prevent double taxation. According to this rule, profits from the sale of shares and other securities from the country where the agency issuing the shares or securities is headquartered or established is one of the sources of income earned abroad.

According to PMK No. 192/03/2018 Article 4 Paragraph 2 Letter C, what is meant by net income is the excess of revenue from foreign sources over all other sources of income.

However, net income, in this case the gain from investing in overseas mutual funds, which must be reported in the Annual Income Tax Return, is subject to tax in Indonesia. Tax treatment in Indonesia does not regulate taxes on stock investment abroad or stock trading abroad.

How to Choose the Right Mutual Fund

Mutual funds are increasingly recognized and appreciated by many groups, especially millennials who are increasingly aware of the importance of investing. Convenience and affordability are the main reasons millennials choose mutual funds as a means of investment. However, most of them are still confused, not knowing how to choose a mutual fund that suits their goals and risk profile. Here are some ways.

Determining Investment Objectives

Set your goals before investing. Is it short, medium, or long in duration? For example, a down payment on a house, tuition fees, car purchases, or vacations. Next, choose a mutual fund that serves that function. For example, stock mutual funds are long-term investments that last more than five years.

This is ideal for those of you who want to save money for your children or your own retirement. However, it is not quite right if the purpose of the investment is to collect money for a down payment or a down payment on a house.

A pool of various mutual funds can be used to cover medium-term spending needs over three years. have a risk threshold comparable to equity funds. Because of their low risk, money market funds are the safest of all mutual funds. Short term investment less than one year is suitable. However, because investment funds do not develop optimally, they are not suitable for retirement funds.

Fixed-income mutual funds, however, work best when invested for one to three years. can be used to diversify investment when the economy is still not as stable as it is today.

Choosing the Right Type of Mutual Fund

Recognizing the existence of various types of Mutual Funds is the next step in choosing Mutual Fund products on other platforms after setting goals and risk profiles.

Mutual funds exist to offer low capital investment options. You can choose the type of mutual fund that best suits your needs from the various types available. Mutual fund products established based on Islamic sharia include money market mutual funds, mixed mutual funds, fixed income mutual funds, and other forms of mutual fund products.

The understanding you have of each type of Mutual Fund will be able to lead you to suggestions regarding the best type of Mutual Fund to choose so that the returns can meet your preferences and investment objectives. Even though it's difficult, in the end you will be able to decide so you can immediately feel how the benefits of investing in mutual funds are.

Doing Research and Analysis

Even if the investment manager has direct control over the fund management system in a money market mutual fund, you can still analyze this product. The goal is to determine if the product is visible and potentially profitable. You can learn about fund management, mutual fund history, and mutual fund operational liquidity.

This product contains several crucial facts that you must understand, such as ownership of an OJK (Financial Services Authority) permit. In addition, you must verify the track record of the Custodian Bank, Investment Manager, and the process used to determine Net Asset Value (NAV).

Choosing a Competent Investment Manager

The Investment Manager manages funds for investment in Money Market Mutual Funds. However, each Investment Manager company has its own way of working and policies.

In other words, you will give other people responsibility for managing your money. It's like entrusting goods, especially in this case money is being placed, of course you have to know very well who you trust to manage Money Market Mutual Funds goods for you. Therefore, studying the performance of Investment Managers is very important if you want to maximize your investment returns.

With ease and finding the latest information, you will easily find out which Investment Manager is right.

See Mutual Fund Performance Regularly

When investing, which mutual fund will you choose? In reality, every form of mutual fund is a possibility, but not all investors are suitable for all. Investors always have various goals and factors to consider. You can choose a particular mutual fund if its operating model fits your goals and expectations.

However, make sure you always investigate the track record of your choice. Yes, you can check how many investors have successfully received returns from the mutual fund or other factors that can convince you to choose the mutual fund.

Successful Cases of Investing in Mutual Funds

One of the most profitable investment vehicles for new investors is mutual funds. Mutual fund interest is relatively higher than deposit interest. Comparing the risk with stock investment is also smaller. So let's take a peek at the success stories of investors who have invested in Mutual Funds and benefited from their investment journey tips below.

Mutual Fund Investor Success Stories

Goals are the first thing we need to have when investing. We certainly don't want to keep going in circles, like on a bus or other means of transportation. When we arrive at our destination, we are sure to feel relieved and satisfied that we have completed a difficult journey. Similar to what happened to Haikal Bekti Anggoro.

About two years ago, this 27-year-old man started investing in mutual funds. The goal is to raise money to buy a house. Haikal hasn't been able to pay cash for his house yet, but at least he can set aside some money for his new home in the South Jakarta area.

This Bogor single has been working hard and managing her money responsibly for the last two years. He buys mutual fund instruments with more than a share of his monthly income to achieve his investment goals.

Haikal immediately set aside a portion of each salary transfer he received from his employer for mutual funds so that it would not be used for other expenses. He then buys his needs and wants with the rest of the money.

A worker in one of these online stores is a cautious type of investor. He invests most of his funds in money market and fixed income mutual funds, which are low risk mutual fund products.

Haikal uses the Bareksa investment platform which holds a legal license as a Mutual Fund Selling Agent from the Financial Services Authority to apply for mutual funds.

Investment Analysis in Mutual Funds on Success Cases

From the case that Haikal continues to invest even after achieving one goal. There are still many unfulfilled financial goals for his life at this young age.

The place to raise money from investors is through mutual funds. The investment manager will place the assets that have been collected in various investment vehicles, such as stocks, bonds or deposits.

Mutual funds are also seen as an alternative to traditional investments for investors, especially first-time and small investors who lack the time and knowledge to assess their investment risks.

When trying to achieve our mutual fund investment goals, we sometimes face a number of challenges, ranging from having too many options to choose from which can confuse or overwhelm us and leave us feeling disappointed with subpar product and market performance. 

It turns out that there are instances where a person has been doing regular, disciplined investing for two to three years, but the results are not what they expected and maybe even negative.

Understanding is necessary to be able to maintain attention to the investment objectives in all these circumstances. Initially, when investing in stocks, bonds or mutual funds, investors should have realistic expectations. Each of these items requires a different application of presumptions. Even when calculating the reasonable return assumption, balanced funds differ from equity and fixed income funds.

Investors also need to understand how markets function, the techniques and strategies used by investment managers in managing mutual funds, and most importantly, the dangers involved. This is very important before you adopt a particular investment approach. 

After that, you can learn more about the Trillion Club and Billion Club mutual funds or continue to differentiate between Blue Chip and Second Liner stocks. You should time the market when you apply the approach.

Failed Investment Cases in Mutual Funds

Investors need to be aware of the dangers associated with these investment products as mutual fund products develop. Mutual funds are still subject to investment risks even when they offer diversified products, including the possibility that mutual fund returns are not guaranteed, the value of the investment is closely related to market risk, the risk is related to the type of securities portfolio that the fund manager chooses to invest in. 

The Story of Investment Failure in Mutual Funds

According to observers, the national insurance business saw a number of issues that led to the fall in life insurance investment in mutual fund products. Although the Covid-19 pandemic has contributed to low demand for insurance due to decreased income, especially due to cases of default by several life insurance companies in recent years, according to Insurance Observer and Lecturer in the MM-FEB UGM Program, Kapler Marpaung.

The majority of insurance company investment in the capital market comes from unit link premiums, continued Kapler, so insurance companies also look for the safest investment risk with the lowest risk.

However, he emphasized that the decline in mutual fund investment would not necessarily have an impact on the performance of insurance companies. When insurance companies have to reform, one way is to switch from high-risk investments to low-risk investments.

Investment Analysis in Mutual Funds in Cases of Failure

Investors may be exposed to the risk of conflict due to various mutual fund investments, such as the problem of default on redemption requests that occur in several mutual funds. The portfolio is exposed to market risk, which prevents the portfolio from being marketed, and the promise of a fixed return, which is a marketing error. The investor decides to file a bankruptcy petition against the investment manager as the mutual fund manager due to being unable to pay the redemption.

Law No. 37 of 2004 has stipulated that apart from the Indonesian bankruptcy legal framework, only the Financial Services Authority can file for bankruptcy against an investment manager. A strong philosophical and sociological framework is provided for the regulation. Of course, filings for bankruptcy of investment managers pose unique legal challenges to the enforcement of agreements.

Investment Trends in Mutual Funds

Is investing in mutual funds still appropriate for today's investors given the increasing popularity of cryptocurrencies and stocks?

This is a legitimate question that anyone can ask. Especially with the increase in financial inclusion and financial knowledge in Indonesia, which has facilitated the creation of various preferred forms of investment. So start by investing in things like bitcoin, stocks, peer-to-peer lending, and anything else that, as long as it fits your needs and timescale, provides a legitimate reward.

However, apart from that, mutual funds are still considered a "classic" investment instrument to this day. As a result, the following question arises: "Are mutual funds still able to meet current investment needs?"

Development of the Mutual Fund Market in Indonesia

Public interest in investing in mutual funds is increasing, especially for new investors. This is so that qualified investment managers can help manage mutual funds. In addition, various investment risk options are offered by mutual funds.

As of August 2022, there were 2.193 mutual fund units in Indonesia, according to data from the Financial Services Authority (OJK). There are 273 Islamic mutual funds and 1.920 conventional mutual funds.

The number of domestic mutual funds has increased over the past ten years. Conventional mutual funds experienced enormous growth, especially in 2018, the number of units increased by 17,6% to 1.875 units.

The Net Asset Value (NAV) of all mutual funds, according to OJK, is IDR 541,73 trillion as of August 2022. The NAV of conventional mutual funds is IDR 498,32 trillion, while the NAV of Islamic mutual funds is IDR 43,4 trillion.

At a closer look, protected mutual funds—850 units with a NAV of IDR 104,02 trillion—are the most traditional. Its holdings mostly consist of 323 units of traditional fixed income mutual funds with a NAV of IDR 146,98 trillion.

After that, conventional equity mutual funds with a NAV of IDR 106,67 trillion of 272 units were added. With a NAV of IDR 207 trillion, there are 207 traditional money market mutual funds available.

The majority of Islamic mutual funds of 72 units with a NAV of IDR 8,53 trillion are currently traded on the money market. The next mutual funds are 56 Islamic equity mutual funds which have a NAV of IDR 6,6 trillion. 39 units of sharia fixed income mutual funds, NAV of IDR 4,88 trillion. Followed by 34 units of sharia protected mutual funds with a NAV of IDR 1,94 trillion.

Investment Growth Potential in Mutual Funds in the Future

The positive signs point to the future potential of equity-based mutual funds. The impact of the Covid-19 pandemic has made the Indonesian economy recover and is expected to continue to grow. The performance and expansion of equity-based mutual funds will certainly provide benefits in the future. According to Schroders, a UK-based asset management firm, 2022 could be a promising year for investing in equity-based mutual funds and stocks.

The Indonesian and world economies are in a recovery phase this year, and growth is starting to show signs of accelerating fairly well. You might think that now is the ideal time to invest in stock-based mutual funds as some of them have already closed and the future prospects for stock-based mutual funds are favorable.

Investment Trends in Mutual Funds in the Global Market

For investors who are constrained in many ways, including time, money, information, and investment knowledge, mutual fund investment products are ideal. Because it is spread over a number of investment products, this instrument can also reduce investment risk. But that doesn't mean investing in mutual funds is risk-free. Investors still need to research the various hazards associated with this product because of this.

Since 1996, mutual funds have developed rapidly in Indonesia, known since 1995. Mutual funds are expected to facilitate public participation in the capital market as a means of investment.

In Indonesia, the development of mutual fund products is quite rapid. Mutual fund industry assets increased in value during the first quarter of 2013 to IDR 187,962 trillion, up 12,72 percent from IDR 166,751 trillion in the same period the previous year, according to Ito Warsito, Main Director of the Indonesia Stock Exchange (IDX).

Mutual fund investment, according to Ito, has a significant positive influence on the domestic capital market. As a result, IDX will continue to reach various parties and provide education.

The unique characteristics of this product and ideal for investors with various limitations, including time, funds, information and investment knowledge, cannot be separated from the rapid expansion of the mutual fund industry. In order to lower the risk and prevent the possibility of total loss, we must spread our investment placements.

Investment Opportunities in Mutual Funds

Financial markets were driven by various global sentiments towards the end of 2022. In contrast to the situation this year, investors still have the opportunity to invest in 2023 and get mutual funds.

Investors will choose corporate bond-based fixed income mutual funds throughout 2022 due to increasing economic tensions and changes in global monetary policy.

Retail SBN Government Securities have also attracted a lot of attention from investors, particularly the non-tradable series with floating rate coupons. This is because retail SBN types such as SBR and ST have small price fluctuations, and coupons will increase in line with an increase in the benchmark interest rate set by Bank Indonesia.

Investment Opportunities in Equity Mutual Funds

Mutual funds that invest at least 80% of their assets in equity products are known as equity funds. By buying and selling stocks, investment managers manage this portfolio of products. Your gains and losses result from increases or decreases in the stock prices of RDS products.

For long-term stock price increases, stock mutual fund investments are made. It makes sense that the value of this product would fluctuate a lot (fluctuate) in the short term, just like stock prices.

As a result, this particular product is suitable for long-term investments that require a commitment of more than five years. Vacationing abroad, paying down a mortgage, setting up a retirement account, and other long-term financial goals are some examples. Investors with high risk tolerance should consider this product. 

The benefits that will be obtained from investing in stocks include:

1. Improved Returns

The average annual yield of this product is higher when compared to other varieties. As an illustration, the Sucorinvest Syariah Equity Fund as of January 6 2023, one of the RDSs at Tanjangduit, has experienced a growth in value of 43,31% in 5 years. In other words, RDS has an average annual growth rate of 8,7%. Pretty alluring, right?

2. Fewer Nominal Investment Fees.

RDS is available at a relatively cheap price, starting from IDR 10.000. The minimum purchase is 1 lot, not 1 share like stocks. Depending on the price per share, the price for 1 lot can also vary greatly.

3. No Requirement for Thorough Analysis

Direct management of managed funds from RDS will be carried out by investment managers and other professionals. Therefore, you don't need to bother choosing the best stocks for RDS investment manager products.

4. Lower Risk

Direct stock investment has a greater risk than RDS, especially if we do not have the technical and fundamental research expertise of the issuer (company). You run the risk of going bankrupt if you accidentally invest a large amount of fried stock and the stock price drops sharply.

Because investment decisions are made by investment managers, RDS is the best choice for those of you who are new to taking risks and want to invest in stocks to a minimum.

Investment Opportunities in Bond Mutual Funds

One type of mutual fund, called a bond fund, invests most of its capital in bonds and debt that mature one year, including corporate and government bonds. The bond itself is a debt participation letter that makes a commitment to pay the principal and interest of the debt on a certain date.

Fixed income funds and guarantee funds are basically the same. It's just that the allocation of investment funds for the establishment of mutual funds is being watched out for.

This mutual fund is the best choice if you are looking for medium duration investment (1-3 years). This is so that the profits from this mutual fund are more profitable at that time. 

The benefits to be gained when investing in bond mutual funds include:

1. Less Tax Than Bonds

Income tax of 15% will be due if you buy the bonds all at once. However, the taxes charged are relatively lower if you invest in mutual funds. For example, the tax investors will pay is 5% in 2020 and 10% in 2021.

2. Cashout Anytime

Disbursement of invested funds can be done whenever convenient, just like mutual funds in general. The cash will be distributed at their own pace. So, if money is urgently needed, you can immediately withdraw it.

Of course, since there is no cashout period, there are also no penalty fees. The investment return amount will be used to pay the funds.

3. Doesn't Drain Your Wallet

The capital needed to invest in bonds through mutual funds is not too high. In contrast to ordinary bond investments, the purchase of bond flyers can reach Rp. 5 million. However, if the money is invested through mutual funds, the capital needed is very easy to access, depending on the ability of the investor.

4. Instant Diversification

The Investment Manager handles investment funds in mutual funds, just like knowledge. The Investment Manager will hand over the bonds to investors who invest in the form of coupons or interest after the bonds are purchased.

Therefore, the Investment Manager will of course distribute a number of corporate bond coupons with a certain composition if you buy mixed mutual funds. Therefore, you will indirectly have various bonds and have diversified investments.

If the company's performance drops, the danger is not too high because it can be reduced by partnering with other businesses. Of course, if you invest in certain bonds, it will be different.

Investment Opportunities in Money Market Mutual Funds

A money market fund is known as a type of mutual fund that invests all of its owner's money in the money market. Securities with maturities of less than one year can be included in the relevant money market instruments. Bank Indonesia Certificates, also known as SBIs, Bonds, and Time Deposits, all have a maturity of less than one year and are the most widely used money market securities.

Money market mutual funds have the lowest risk compared to other mutual funds. The distribution of investments made through money market mutual funds is relatively simple. Although very promising, money market mutual funds do not offer a higher return than other types of mutual funds.

Here are some of the advantages of investing in money market mutual funds that you should know about, even though they are less profitable than other mutual funds:

1. Higher Income

Mutual fund investments typically generate returns of 6% to 7% per year. However, the amount of interest earned is very small when compared to just saving cash in a savings account. Even if your deposit has a nominal value of less than one million rupiah, you will still get zero percent interest. If you put your money in a money market mutual fund, that's another scenario. Profits will increase in number.

2. It Only Needs IDR 100.000 to Start a Money Market Mutual Fund.

If you are just starting to invest, you can usually start with small investments. One suitable instrument is a money market mutual fund because you can start investing with as little as IDR 100.000. The profit you get will certainly be different from those of you who start investing with large amounts. However, there's nothing wrong with starting small.

3. It is possible to withdraw money at any time.

The freedom to withdraw money is another advantage of money market mutual funds that other investment products don't have. The money invested can be withdrawn whenever you want, without having to wait for a certain time. Due to online accessibility, the disbursement procedure is relatively simple. In addition, money withdrawal is possible without any fees.

Investment Opportunities in ETF Mutual Funds

Mutual funds that use exchange traded funds (ETF) are less well known to the general public. However, this asset class mutual fund is considered to have a large expansion opportunity.

ETF mutual funds, according to the President and CEO of PT Pinnacle Persada Investama Guntur Putra, still have great potential to develop in the Indonesian capital market. The number of products and investment managers (MI) releasing ETF mutual fund products continues to increase in line with the growth of the ETF mutual fund industry over the past five years.

ETF mutual funds hide transparency because their trades can be monitored in real time. Just like stock trading, ETF mutual funds are also listed on the Indonesia Stock Exchange (IDX).

Guntur said that this is what differentiates stock-based ETF mutual funds from conventional stock mutual funds. ETF mutual funds can be traded on the Indonesia Stock Exchange, the ordering/redemption mechanism process is the same as the buying/selling of shares which can be done during stock exchange hours.

Considering that ETF mutual funds have an underlying stock portfolio and there are also mutual funds with an underlying bond portfolio, there are several investment alternatives.

Here are some of the benefits of investing in ETFs that you can get, including:

1. more effective

Due to the fact that you can buy a pool of high-quality, liquid stocks for a very small amount of money, ETFs are considered efficient investment products. For example, purchasing the XPTD ETF requires buying each share of the IDX30 index weighted by 30 shares, which is equivalent to the weight of the IDX30 index. BCA's share weight of 30% of IDX30 is an illustration.

2. Flexible

ETFs, like stocks, can be traded at any time during exchange trading hours.

3. Low Cost and Risk

Fund manager management fees in terms of buying or selling are much less than mutual funds. In accordance with the broker's commission, there is an additional fee for ETFs on the secondary market.

4. Transparent 

Every day, the composition of the ETF is usually disclosed so that investors can find out exactly which companies this ETF mutual fund holds. Investors who want to buy or sell ETF participation units can find out the true value of the shares they are trading by checking the NAV/UP or the price of the ETF issued by the dealer several times per minute. 

Of course, this is different from, say, a stock mutual fund. Equity mutual funds, which are usually settled at the time of transaction and can only be traded once per day with a deadline of 13.00.

Such is the information about mutual funds. We hope that you understand more and of course are ready to go to the next stage to invest in mutual funds.