Before investing in mutual funds, you need to clearly understand these 4 basic points.

What Is a Mutual Fund Really

Many people think that investing in funds is complicated, but in fact, the concept is quite simple. Mutual funds are when a securities management company pools money from individual investors and then invests that money in various securities according to a set policy. The returns generated are then distributed to each investor proportionally based on their investment.

Why establish such funds? Because when pooling money from many people, the total amount becomes large enough to invest in securities that individual investors might not be able to purchase on their own. Additionally, fund managers are professionals who have been trained and certified by the stock exchange, making this suitable for busy individuals with no experience in selecting securities or limited capital.

Advantages of Investing Through Funds

Effective diversification is the most significant benefit. When a fund has a large amount of capital, the manager can invest in a variety of assets, such as stocks, bonds, or deposits. If some assets incur losses, others that profit will offset those losses.

There are also many other advantages, such as professional management, oversight by the Securities and Exchange Commission, which ensures transparency, and continuous monitoring of the investment portfolio to ensure it operates according to the set policy.

Types of Funds

Classification by Unit Trust Sale Method

Closed-end funds are sold only once during the fundraising period. After that, no new units are issued, and when the project ends, the fund is dissolved. If investors want to sell before the end, they must do so outside the system. The assets of a closed-end fund remain fixed throughout the project period.

Open-end funds are available for purchase and redemption at any time. Investors can continuously buy new units and sell them back for cash on trading days. Open-end funds are more convenient and do not have a closing date unless specified in the prospectus.

Classification by Investment Policy

Money Market Funds invest only in deposits and short-term debt securities. They have low volatility and the lowest risk, suitable for those who want to avoid risk.

Bond Funds invest in bonds, treasury bills, and corporate bonds. They offer higher returns than money market funds but still carry low to moderate risk.

Mixed Funds invest in both debt securities and stocks, with stocks not exceeding 80%. They offer relatively good returns with moderate risk, suitable for beginners in stock investing.

Flexible Hybrid Funds have no restrictions on stock holdings. Managers can adjust the proportion from 0% to 100% based on market forecasts. Suitable for those who want professional management but lack time.

Equity Funds primarily invest in stocks, with at least 80% of the portfolio in equities. They offer high returns but also come with high risk.

Industry Sector Funds focus on stocks within a specific industry, such as banking or telecommunications. Returns and risks fluctuate according to the industry’s situation.

Alternative Asset Funds invest in commodities like gold, oil, or agriculture. They carry very high risk and are suitable for risk-tolerant investors.

No fund is suitable for everyone at all times. The key is to find a fund that matches your current situation.

5 Important Steps Before Investing in Mutual Funds

Step 1: Assess Your Risk Tolerance The main question is: if your investment fluctuates by 10% or 20%, will you feel comfortable? Taking the KYC test provided by the asset management company will clarify this.

Step 2: Look at the Overall Economy Is the stock market falling or rising? Are interest rates high or low? These factors will help you choose which type of fund is more suitable.

Step 3: Study the Fund’s Policy Read the prospectus carefully. Understand what the fund invests in, the expenses involved, and the redemption conditions.

Step 4: Check Past Performance See how well the fund has performed, whether it is stable, and how much volatility it has.

Step 5: Monitor Results Regularly After investing, keep an eye on performance continuously. When circumstances change, you may need to adjust your fund choices.

Where Do Returns Come From and How Are They Measured?

Once you purchase units, you need patience because funds differ from stocks, which can be traded frequently. Generally, open-end funds are only traded once per day.

NAV (Net Asset Value) is the value of a fund’s unit, calculated from all assets held by the fund on that day. (Based on current prices), minus liabilities and expenses.

If today’s NAV is higher than the NAV at the time of purchase, the difference is your profit, called Capital Gain. This type of return arises from the appreciation of the fund’s assets.

Some funds also pay returns in the form of Dividends (Dividend) periodically, without requiring you to sell units.

Profits or losses from investing in funds come from both Capital Gains and Dividends, combined (if the fund provides both types).

Summary

No investor is perfect from the start. Limitations such as lack of experience, busy schedules, or limited capital should not be reasons to fail in financial planning. Mutual funds help make investing easier.

Letting your money sit idle is effectively allowing it to lose value over time. With all the tools available to address these limitations, the only remaining question is: When will you start?