Mutual Fund is an investment alternative for investors, especially for small investors and those who have less time and skill to count the risks of their investments. Mutual Fund is designed as tool to gather fund from public that have the capital, will to invest, but only have limited time and knowledge. Beside that, through Mutual Fund, it is expected that the number of local investors in the Indonesia’s Capital Market can increase.
Generally, Mutual Fund is defined as a mean to collect fund from the investment society to be invested in portfolios by the fund manager. This definition is also written in the Capital Market Law No.8/1995 section 1 clause (27) regarding Mutual Fund. There are three points shown on this statement. First, Mutual Fund collects fund from the society. Second, the fund is then invested in the securities portfolio. Third, the fund is managed by an Investment manager.
Therefore, the fund put in the Mutual Fund is investors’ collective fund, and the Investment Manager is the person trusted to manage the fund.
Benefits and Risks
Benefits of investing in mutual fund are:
- Investors with smaller budget can do investment diversification in their securities to minimize the risks. For example, an investor with limited fund can have a bond portfolio, which is impossible to do if he/she does not have big budget. By Mutual Fund, fund can be collected in big amount to make it easier to diversify both for capital market instruments and money market; it means that the fund is invested in various types of instruments such as deposit, stocks, and bonds.
- Mutual Fund helps the investor to invest in capital market easier. Determining which good stocks to buy is not easy. It needs specific knowledge and experiences, which some investors don’t have.
- Time efficiency. Since the fund invested in the Mutual Fund is managed by a professional fund manager, investors do not need to monitor their investment performance all the time.
Like other investments, besides giving the investor the opportunity of profit, Mutual Fund has possibilities of risks. Such as:
Risk of decreased value of participating unit.
This risk is influenced by the decrease price of securities (stock, bond, and other marketable securities) that included in the Mutual Fund portfolio.
Liquidity risk.This risk is related to the difficulty faced by the fund manager if most of the unit holders resell (redemption) their unit. Fund manager will find difficulty in providing cash for this redemption.
Default risk.This risk is the worst risk, which can emerge when the insurance company that insures the Mutual Fund’s wealth does not pay the indemnity or pay lower than the loading value when unwanted events happens, such as the unability to fulfill the liabilities of parties related to the Mutual Fund, brokerage, custodian bank, payment agent, or catastrophic events that cause the decrease of Net Asset Value of Mutual Fund.
From the investment portfolio, mutual fund can be categorized as follow:
Money Market Funds.This Mutual Fund only invests on debt securities, which maturity date is less than a year. The target is to keep the liquidity and maintain the capital.
Fixed Income Funds.This Mutual Fund invests at least 80% of its assets in debt securities. This mutual fund has relatively higher risk than money market funds. The purpose is to produce astable return.
Equity Funds.Mutual Fund that invest at least 80% of its assets in equities. Because it invests in stocks, it has higher risks than the previous two types of Mutual Fund. However, it gives higher rate of return.
Discretionary Funds.This type Mutual Fund invests in both equities and debts securities.
Information on Mutual Funds
Further information regarding the Mutual Fund can be accessed through the website of Indonesia Financial Services Authority (OJK) https://reksadana.ojk.go.id