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 they are busy with something else and or have limited knowledge about investment.

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.

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