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Getting to Know Mutual Funds, Low Risk Investment for Beginners

Understand the general knowledge about mutual funds that are suitable for beginners to start investing without a doubt.

Have you ever heard of the term mutual fund? Or, at least you've read about mutual funds at a glance but don't understand what they are, how they work and also the benefits?

This mutual fund investment instrument is arguably the cheapest, least risky, and very suitable for beginners. Through this article, you can understand what mutual funds are, what are the advantages and risks, types of mutual funds, and how to invest.

Read on for the information!

What is Mutual Fund?

Mutual funds in English are referred to as mutual funds. If interpreted, mutual funds means crowdfunding together. Not much different, the meaning of mutual funds in Indonesian is also defined as raising funds according to the Capital Market Law of 1995, article 1 paragraph 27.

In full, the definition of mutual funds according to the law is a forum to collect funds from the investor community to be further invested in securities portfolios by investment managers. Simply put, with mutual funds, you can buy certain securities without spending a large amount of capital.

Mutual funds are the best choice for people who are hesitant to invest due to lack of capital and knowledge. However, with an easy scheme, mutual funds allow anyone to invest without worries and doubts.

Mutual funds are legally shaped as Collective Investment Contracts (KIK) signed by the investment manager and the custodian bank. The investment manager is the party that manages the investment portfolio, while the custodian bank is the party that provides collective fund custody.

Mutual Fund Benefits and Risks

This mutual fund scheme is suitable for those of you who want to invest but only have mediocre capital, time, and investment knowledge. Starting from only IDR 10.000, you can start investing and you don't need to monitor the progress because this role has been entrusted to the investment manager.

In detail, here are the advantages of using mutual funds.

Very Affordable

With a crowdfunding scheme, mutual funds can be done with a small capital. You can even start with small numbers like IDR 10.000 to IDR 100.000. With a small capital, you can still buy a portfolio in securities that usually require large capital such as bonds or stocks.

Time Efficiency, Low Risk, and Transparent

Funds that have been invested will be managed and monitored for their performance by the investment manager. He is also the one who will offer which effects are beneficial for the investor community. With this, you no longer need to spend time monitoring the movement of your money.

In addition, you are also free to choose the investment diversification provided by the investment manager. This shows that mutual funds tend to be less risky to run. Broadly speaking, there are two duties of an investment manager.

First, it will determine what effects are beneficial for the funds already accumulated, for example stocks, bonds, time deposits, etc. Second, the investment manager is also tasked with monitoring portfolio performance and reporting it regularly to the investor community.

Everyone Can Do

Determining profitable securities or securities is not an easy job, but requires its own knowledge and expertise. You cannot speculate freely without having the knowledge. You might lose and the money that has been invested will just be forfeited.

With mutual funds, you don't have to worry if you don't have good knowledge about securities or investment as a whole. This is why mutual funds are perfect for beginners because sorting securities and monitoring portfolios is the job of an investment manager. You only deposit the amount of crowdfunding you want, then just withdraw it within a certain period.

 

Although they have many advantages, mutual funds also have some risk, including the following.

Impairment Risk

The first risk is impairment. The value of a mutual fund is seen from the price of the mutual fund which is taken from the net asset value per unit of participation. (NAV/UP). The movement of NAV/UP shows the performance of mutual funds.

NAV is the total assets of the mutual fund after deducting all obligations that must be met. Meanwhile, UP is a unit that shows the investor's share of ownership. The price obtained from the NAV/UP is calculated every trading day and will be affected market risk from effect, so the value can go up and down.

You can minimize this risk by investing in mutual funds in low-risk securities such as deposits or bonds because their maturities are less than a year. A decline in value will be more risky to mutual funds with high-risk securities such as stocks that tend to fluctuate.

Liquidity Risk

Borrowing English terms liquid which means liquid, liquidity is closely related to the disbursement of funds and investment managers. This happens when most investors want to sell back their UP (redemptions), but investment managers have difficulty providing cash on redemption The.

Then, there will be a delay in disbursement by the investment manager. In the mutual fund itself, the proceeds from the sale of UP must have been sent by the investment manager to the investor's account no later than 7 trading days (Saturday, Sunday, and national holidays are not counted).

Default Risk

The last risk is default, failure to reach an agreement or in the context of mutual funds is default. This occurs when one or more of the investment manager's business partners cannot fulfill their obligations as agreed.

These business partners include issuers, brokers, custodian banks, mutual fund securities selling agents, etc. previously appointed by the investment manager. Meanwhile, failure to fulfill obligations such as not giving coupons from the purchase of bonds, being late in giving compensation or paying less in the event of a natural disaster, etc.

Types of Mutual Funds

Currently, there are many parties that offer services for depositing mutual funds such as Bank Mandiri, Bank BCA mutual funds, Bank BRI mutual funds, and other national banks. Apart from banks, there are also brands that provide special services for mutual funds such as Bareksa, Bibit, Danareksa, etc.

You are free to choose which party is the most trusted to manage your investment money. Don't forget to do research on the form of services offered, especially to check whether the party already has permission from the Financial Services Authority (OJK).

So far, there are 97 investment managers who have received official permission from the OJK. In addition to choosing a trusted investment manager, make sure you choose the right type of mutual fund. Understand the types of mutual funds below.

Money Market Mutual Funds (Money Market Funds)

Money market mutual funds invest in debt securities with maturities of less than one year. The reason for the short maturity is to facilitate liquidity and capital maintenance.

Some examples of securities that can be selected for money market mutual funds are time deposits, Money Market Securities (SBPU), Bank Indonesia Certificates (SBI), etc. This type of mutual fund is considered the least risky. However, since the maturity is too short, then return obtained is also small.

Fixed Income Mutual Funds (Fixed Income Funds)

Similar to money market mutual funds, this type of mutual fund also invests in debt securities. However, fixed income mutual funds carry greater risk than money market funds, but have a goal of getting stable returns.

Usually, this type of fixed income mutual fund will invest in long-term debt securities issued by the government or private companies that have stable movements. For example, Government Securities (SUN), sukuk, and bonds are at least 80 percent of their assets.

Equity Funds (Equity Funds)

Like the nature of stocks, this type of mutual fund is known to have high risk high returns or the risk and return is greater than the previous two types of mutual funds. Equity mutual funds will invest at least 80 percent of their assets in the form of equity securities.

Mixed Mutual Fund (Discretionary Funds)

As the name implies, a mixed mutual fund will invest in debt and equity securities. Because this type of mutual fund is mixed, the investment risk is based on the main asset chosen.

For example, the main asset is an equity or stock mutual fund. So the investments made tend to be high risk. However, if the main asset is debt, then the mutual fund is less risky.

To better understand the different types of mutual funds, consider the following picture.

Source: OVO

Easy Ways to Invest in Mutual Funds

After knowing the advantages and disadvantages of mutual funds, now is the time for you to know how to invest with mutual funds. Before that, you must first pay attention to the nature of the mutual fund you are going to invest in.

This nature refers to conventional or sharia mutual funds. For those of you who are Muslims, you will usually consider these sharia mutual funds. In essence, the implementation of sharia mutual funds will be adjusted to sharia principles and there is a mechanism for cleaning non-halal wealth.

For more details, see the difference between conventional and sharia mutual funds by Bareksa below.

Source: Bareksa

In addition to its nature which has several differences, in general, the way mutual fund investment works is as follows.

  1. The investor community or investors choose mutual fund products and then buy them at a certain amount (UP).
  2. The funds that have been collected will be allocated by the investment manager to various securities products according to the mutual fund choice of each investor.
  3. The investment manager will monitor the performance and report the portfolio of each mutual fund within a certain period in the form of: fund fact sheet (FFS).
  4. Investors can withdraw funds at any time, sometimes a selling fee also applies. As a rule, investors can get a maximum of 7 trading days.

The workflow is very easy isn't it? Well, before jumping into mutual fund investing, you need to know 5 tips for doing the step number 1, which is choosing the right mutual fund product.

  1. First and foremost, learn and understand what a mutual fund is and its terms.
  2. Define investment goals, costs and deadlines. Your goals will depend on the mutual fund product you will choose.
  3. Do research on mutual fund products on various platforms or applications.
  4. Choose the best mutual fund app or platform based on your research.
  5. Customize the product you will choose with your goals.

 

Until here our discussion to get to know mutual funds. Make sure you really study it before investing in mutual funds, OK! In addition to doing independent research, you can also ask friends who understand better or join a community.

I hope this information is helpful!

Image source headers: Unsplash


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