Understanding Mutual Funds, Types, Benefits and Risks

In general, mutual funds are divided into four types, money market mutual funds, fixed income, mixed and stocks.

Mutual funds are an alternative investment for investors, especially small investors and investors who do not have much time and expertise to calculate the risk of their investment.

Mutual funds are designed as a means to raise funds from people who have capital, have the desire to invest, but only have limited time and knowledge.

In addition, mutual funds are also expected to increase the role of local investors to invest in the Indonesian capital market.

Generally, mutual funds are defined as a forum used to collect funds from the investor community to be further invested in securities portfolios by investment managers.

There are three things related to this definition, namely, first, the existence of funds from the investor community. Second, the fund is invested in a portfolio of securities, and third, the fund is managed by an investment manager.

Thus, the funds in the mutual fund are joint funds of the investors, while the investment manager is the party who is trusted to manage the funds.

Types of Mutual Funds

In general, there are four types of mutual funds, namely money market, fixed income, mixed and stock mutual funds.

1. Money Market Fund

Money market mutual funds are mutual funds that invest in money market investment instruments with maturities of less than one year.

The forms of investment instruments can be in the form of time deposits (term deposits), certificates of deposit (certificates of deposit), Bank Certificates, Money Market Securities (SBPU) and various types of other money market investment instruments.

The goal is to maintain liquidity and maintain capital. The risk is relatively low compared to other types of mutual funds.

2. Fixed Income Fund

Fixed income mutual fund is a type of mutual fund that invests at least 80 percent of its assets in the form of debt securities or bonds.

The goal is to generate a stable rate of return. The risk is relatively greater than money market mutual funds.

3. Balanced Mutual Fund

A balanced mutual fund is a type of mutual fund that allocates its investment funds in a variety of portfolios. Investment instruments can be in the form of stocks and combined with bonds.

The goal is price and income growth. The risk of mixed mutual funds is moderate with the potential for a relatively higher rate of return compared to fixed income funds.

4. Equity Fund

Equity mutual fund is a type of mutual fund that invests at least 80 percent of its assets in the form of equity securities.

The goal is to grow the stock or unit price in the long term. The risk is relatively higher than money market mutual funds and fixed income funds, but has the highest potential return.

Advantages of Investing in Mutual Funds

Mutual fund investment brings various profit opportunities. Mutual fund investors can diversify their investments without having a large capital.

For example, an investor with limited funds may have a portfolio of bonds, which is impossible if the investor does not have large funds.

Through mutual funds, large amounts of funds will be collected so that investment managers can diversify their investment products in the capital market as well as in the money market.

In other words, investments are made in various investment products such as stocks, bonds, deposits, in accordance with the policies of each type of mutual fund managed.

Through mutual funds, even ordinary investors can feel the sweet benefits of investing in the capital market.

Like investing in stocks, in terms of determining what stocks are good to collect is not an easy job. This requires special knowledge and skills that not all investors have.

By investing in mutual funds, investors do not need to bother to monitor their investment performance. This is because this has been handled by a professional investment manager who is experienced in managing funds.

Risks of Investing in Mutual Funds

Like other investment platforms, in addition to bringing various profit opportunities, mutual funds also contain various risk opportunities.

For example, the risk of decreasing the value of the investment unit. The risk that is affected by the falling price of stock securities, bonds, or other securities included in the mutual fund portfolio can be minimized by the investment manager (as the manager) with the applied diversification principle.

Liquidity risk is the risk of difficulties faced by investment managers if most mutual fund investors make redemptions (resale) of their units.

Conditions like this may have the opportunity to make it difficult for the investment manager to provide cash for the redemption .

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