What is Mutual Fund Investment? Types of Mutual Funds, Benefits, and What are the Risks?

What is Mutual Fund Investment? Types of Mutual Funds, Benefits, and What are the Risks?

Investation ? Who does not know the name of investment? Well investment is investing money or capital in a company or project with the aim of making a profit. Or investment can also be interpreted as a way to use time, money, or energy to get profits in the future.

It could also be said that investment is buying something that is expected to be resold at a price higher than the original price.

Investment is a choice for people who want to get profits, future, pension costs or various other purposes.

Among the various investment objectives, one of them is also an alternative in doing business. In addition to investing business is also carried out to increase additional income. Additional income from investment can strengthen the main income from your daily work. That way in terms of your economy will increase.

Investing can in some cases be in stocks, gold, foreign exchange (forex), mutual funds, and many others. Among the many types of investments available this time, I will discuss mutual fund investments. Then what is Mutual Fund? Check out the following sequences.

What is Mutual Funds? Mutual funds are a container that is used to collect funds from the community of investors (investors) for further investment in the Securities portfolio by the Investment Manager.

Or in other words, a Mutual Fund is a container and fund / capital management pattern for a group of investors to invest in investment instruments available in the Market by buying mutual fund participation units. These funds are then managed by Investment Managers (MI) into investment portfolios, whether in the form of shares, bonds, money markets or other securities / securities.

There are three important things related to the definition of mutual funds, namely, First, the existence of funds from the investor community. Second, the fund is invested in a securities portfolio, 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 that is trusted to manage the funds.

There are four important elements in the understanding of mutual funds, namely:

1. Mutual funds are a collection of funds and owners (investors).
2. The mutual fund is a medium and long term instrument
3. he mutual fund is managed by an investment manager.
4. Invest in securities known as investment instruments.

In mutual funds, investment management is in charge of managing the funds placed in securities and realizing profits or losses and receiving dividends or interest recorded in the "Net Asset Value" (NAV) of the mutual fund.

Mutual fund assets managed by the investment manager must be kept in a custodian bank that is not affiliated (not incorporated) with the investment manager, where the custodian bank will act as a place for collective administration and safekeeping.

Index mutual funds were first introduced in 1976 by John Bogle under the name First Index Investment Trust, which is now called the Vanguard 500 Index Fund which is the largest managed fund that reaches 100 trillion US Dollars.

A. Mutual Fund Category

Based on the category of mutual funds can be classified into two namely:

Closed Mutual Funds are mutual funds that cannot be resold to investment management companies that issue mutual funds. Closed mutual fund participation units can only be resold to other investors through the trading mechanism on the Stock Exchange. The selling price can be above or below the Net Asset Value.

Open Mutual Funds are mutual funds that can be resold to Investment Management Companies that issue them without going through a trading mechanism on the Stock Exchange. The selling price is usually the same as the Net Asset Value. Most of the existing mutual funds are open mutual funds.

B. Legal Mutual Fund Forms

The legal form of mutual funds in Indonesia is based on Capital Market Law Number 8 of 1995 article 18 paragraph (1), containing two forms of mutual fund law, namely Mutual Funds in the form of Limited Liability Companies (PT. Mutual Funds) and Mutual Funds in the form of Collective Investment Contracts (KIK).

1. Mutual Funds in the form of a Company (PT. Mutual Funds)

A corporate mutual fund is a company (limited liability company), which in terms of legal form is no different from other companies. The difference lies in the type of business, namely the type of investment portfolio management business.

2. Collective Investment Contracts

A collective investment contract is a contract made between the Investment Manager and the Custodian Bank which also binds the Participation Unit holder as an Investor. Through this contract the Investment Manager is authorized to manage the securities portfolio and the Custodian Bank is authorized to carry out investment safekeeping and administration.

C. Types of Mutual Funds

1. Equity Funds
Equity fund is a mutual fund that invests at least 80% of the portfolio it manages into equity securities (shares). Stock effects generally provide higher potential returns in the form of capital gains through growth in share prices and dividends. This equity fund offers the greatest potential for growth in investment value as well as the risks.

2. Money Market Funds
Money market mutual funds are mutual funds that invest 80% in money market securities, namely debt securities with a maturity of less than one year, such as SBIs, deposits. Money market mutual funds are mutual funds that have the lowest risk but also provide limited returns.

3. Mutual Funds Index
Index Mutual Funds are mutual funds that contain most of the index (not all, which is important to reflect the index) and are managed passively, meaning that they do not buy and sell on the stock exchange, unless there is a new subscription or redemption, therefore index funds are usually the advantages and disadvantages in line with the index (if there is a difference, usually the difference is small). If the mutual fund is traded on an exchange, it is called an Exchange Traded Fund (ETF) and the price fluctuates every second, so it actually looks like a stock.

4. Fixed Income Funds
Fixed income mutual funds are mutual funds that invest at least 80% of the portfolio they manage into debt securities. Higher investment risk from money market mutual funds makes the return value (profit) for this type of mutual fund also higher but still lower than mixed funds or stocks.

5. Mixed Mutual Funds
Mixed mutual funds are mutual funds that invest in equity securities and debt securities, the ratio of which is not included in the category of fixed income funds and stock mutual funds. The potential yield and risk of mixed mutual funds can be greater than fixed income funds, but smaller than equity funds.

D. Risk of Mutual Fund Investment

If you want to start investing in mutual funds, you as an investor must recognize some of the risks of mutual fund investing

1. Market Risk

Market Risk is a situation when investment instrument prices decline due to the drastic decline in the performance of the stock market or bond market. Another term is that the market is experiencing a bearish condition, bearish is a condition where the prices of shares or other investment instruments experience a very drastic price decline. Market risks that occur indirectly will result in the NAV (Net Asset Value) existing in the Mutual Fund Participation Unit will also experience a decline.

2. Default Risk

Default risk occurs if the Investment Manager buys a bond owned by an issuer that is experiencing financial difficulties even though previously the company's financial performance was still fine so the issuer was forced to not pay its obligations. This risk should be avoided by selecting an Investment Manager who applies a strict investment portfolio purchasing strategy.

3. Risk of decreasing NAV (Net Asset Value)

This Participation Unit Decrease was caused by the market price of the investment instruments included in the Mutual Fund portfolio experiencing a decline compared to the initial purchase price. The cause of the decline in the market price of Mutual Fund investment can be caused by a variety of things, including the deteriorating stock market performance, or it could also be an uncertain political and economic situation.

4. Liquidity Risk

This potential liquidity risk could have occurred if the holder of a Mutual Fund Participation Unit at one particular Investment Manager apparently withdrew a large amount of funds on the same day and time. The term, the Investment Manager is experiencing a rush (massive withdrawals of funds) of the Mutual Fund Participation Unit. This can occur if there are extraordinary negative factors that affect mutual fund investors to resell the mutual fund Participation Unit.

5. Default Risk

This risk is the worst risk, where this risk can arise when the insurance company insuring the assets of the Mutual Fund does not immediately pay compensation or pay less than the insurance value when things happen that are not desirable

E. Benefits of Mutual Fund Investment

Mutual funds have several other attractive investment alternatives, namely:

1. Diversified investment

Diversification or spread of investments that are manifested in a portfolio will reduce risk (but cannot eliminate risk), because mutual funds or wealth are invested in various types of securities so that the risk is spread.

2. Managed by professional management

The role of the Investment Manager is very important considering that individual investors generally have limited time, so they cannot conduct research directly in analyzing the price of securities and accessing information to the capital market. Well here the role of investment managers is to conduct research directly and analyze the price of securities and access information to the capital market

3. High liquidity

For investments to be successful, each investment instrument must have a high level of liquidity. Thus, investors can redeem their Participation Units at any time according to the provisions made by each Mutual Fund, making it easier for investors to manage their cash. Open mutual funds are required to buy back their Participation Units so that they are very liquid.

4. Low Cost

Because mutual funds are a collection of funds from many investors and then professionally managed, in line with the large capacity to make these investments will also produce transaction cost efficiencies. Transaction costs will be lower than if an individual investor conducts his own transaction on the exchange.

5. Information transparency

The mutual fund is obliged to provide information on the development of its portfolio and its costs continuously so that Participation Unit holders can monitor their profits, costs and risks at any time. The Investment Fund Manager must announce its Net Asset Value (NAV) every day in the newspaper and publish semi-annual and annual financial reports and prospectuses on a regular basis so that Investors can monitor the progress of their investments regularly.

F. Terms in Mutual Funds

Investment Manager

Investment Manager is a party whose business activities are managing the Mutual Fund Portfolio for customers. The performance of Mutual Funds is very much determined by the expertise of Investment Managers in preparing the portfolio of Mutual Fund investment instruments. Investment Managers are supported by professional staff consisting of the Investment Committee and the Investment Management Team. Some well-known investment managers in Indonesia are:

    Schroders Investment Management Indonesia
    Mandiri Investment Management
    Danareksa Investment Management
    Mega Asset Management
    MNC Asset Management
    Sinarmas Asset Management

Exchange Traded Fund (ETF)

Exchange Traded Fund (ETF) is a mutual fund which is an innovation in the world of the mutual fund industry which is similar to a public company in which its participation units can be traded on an exchange. This ETF is a combination of closed mutual funds and open mutual funds, and these ETFs are usually mutual funds that refer to stock indexes.
Net Asset Value

NAV (Net Asset Value) is one of the benchmarks in monitoring the results of a Mutual Fund, NAV is a value that describes all the net assets of a Mutual Fund every day.
Online Mutual Funds

For the first time opening a mutual fund account, you must now face-to-face with an investment manager / mutual fund agent, but subsequently the purchase or resale of a mutual fund can be done online, where no document submission is required and certainly no need to meet the Investment Manager or Sales Agent.


The Online Mutual Fund purchase and sale cut-off time is the same as an ordinary mutual fund, which is 13.00 o'clock and if it is less than that means the online is not perfect and should be avoided. Online Mutual Funds are much safer because everything is directly related to your account and has nothing to do with other people's accounts.

Excellence of Mutual Funds Online:

1. Comprehensive performance analysis and monitoring features.
2. Ease of buying and selling mutual funds.
3. Ease of registration. The registration process is done online and does not need to be present at the branch office.
4. A very affordable investment amount. Mutual Fund investments can be made starting from IDR 50 thousand or even IDR 10 thousand rupiah
5. Mutual Fund transaction discount.

Several online mutual fund platforms in Indonesia include:
    Indopremier
    Bareksa
    Mandiri Sekuritas Online Trading
    BukaReksa (Mutual Fund agent owned by Bukalapak)
    Mutual Funds Manulife

Custodian Bank

A custodian bank is a party that holds Mutual Fund assets and customer money, so that customer funds are not lost or taken away / taken away hhe.
Prospectus

Prospectus is any statement printed or written information that is used for a Mutual Fund Public Offering with the aim of the investor to purchase an Investment Fund Participation Unit.
Investment Types and Policies

This is how investor money in mutual funds will be invested by the Investment Manager. Also investment strategies and policies adopted by the Investment Manager.
Mutual Fund Fee

Mutual fund costs are costs that must be borne by investors.
Legality of Mutual Funds

Legality of mutual funds is a permit for the formation and legality of mutual funds obtained from regulators (policy makers / investment managers).
Investor Rights

Investor Rights are rights owned by investors that must be fulfilled by the Investment Fund manager.

G. Advantages of Mutual Fund Investment compared to other investments

1. Supervised by the financial services authority (OJK)

2. Affordable initial capital

3. Broad marketing network

4. Various asset base options

Now with some advantages and disadvantages of investing in mutual funds, maybe you can choose this type of investment. To start this Mutual Fund Investment, you don't need to be busy and bother to manage your investment portfolio, because everything in managing your investment portfolio is already managed by an investment manager that you trust. If there are extraordinary negative factors that affect the mutual fund market, you can withdraw funds from your mutual fund's Participation Unit. So you can minimize the risks that will come. Happy investing and good luck, okay!!