The high interest shown by the public in mutual funds can be seen from the increasing number of mutual fund investors. According to Infovesta data1, there are currently 6.8 million mutual fund investors with a total asset under management of over IDR 550 trillion. This number of investors increased by 115% compared to the end of 2020, which was only 3.1 million. There are reasons why mutual funds are in great demand by investors. One of them is the performance of mutual funds in 2021.
Although the pandemic situation continued to shift throughout 2021, which impacted the economy dynamics, in general the pandemic got under control as the vaccinations reached more people. Mutual funds performance also increased. Infovesta data1 showed that the average performance of fixed income mutual funds rose by 3.6%, followed by the average performance of money market mutual funds at 3.2% and balanced mutual funds at 2.6%. Meanwhile, equity mutual funds still showed correction on average, but there are a number of products which performance rose above the IDX.
With this performance, it is not surprising that many investors put their money in mutual funds. If you want to start investing in mutual funds, you need to start by knowing how mutual funds investing works and what are the types of mutual funds. That way, you can choose the right mutual fund product for you.
Understanding how mutual funds work, the types of mutual fund products, and their characteristics are the first steps that must be mastered by mutual fund investors. Mutual funds are investment instruments that are managed by a financial institution known as an Investment Manager. Funds from investors will be collected, managed, and invested by the Investment Manager in various types of investment instruments such as stocks, bonds, and other money market instruments.
The Investment Manager will issue mutual fund products and provide information about the weighted instruments and the composition. Mutual fund investors simply choose the Investment Manager, the type of mutual funds, and the desired product, and regularly monitor the growth of their investment, not forgetting to take action to realize profits by selling the products in their portfolio when they have achieved their investment goals.
Mutual funds are among the investment instruments with the flexibility to choose the investment sectors, and the potential profit ranges from conventional, moderate, and high.
Of course we want to gain the maximum profit with the lowest risk. However, there are also investors who are looking for high profits after understanding the risks of the investment actions they take. It all depends on the risk profile of each investor.
The types of mutual funds sorted from the most conservative to the most aggressive are money market mutual funds, fixed income mutual funds, balanced mutual funds, and equity mutual funds. Mutual funds with more aggressive product risk generally offer higher potential profit or return. Meanwhile, conservative mutual funds offer potential returns that are relatively higher than interests from deposits.
In terms of portfolio and asset allocation, money market mutual funds focus on domestic money market instruments which mature in less than 1 year.
Fixed income mutual funds have a composition of at least 80% of their assets invested in debt securities or bonds.
Balanced mutual funds are a portfolio of various instruments, with placements in several securities at once, including stocks, debt securities, and money markets.
Meanwhile, equity mutual funds invest at least 80% of their assets in stock instruments.
After knowing and understanding these types of mutual funds, potential investors must also know their investment goals and personal financial capabilities. Always use funds that are set aside for investment, namely funds that would not affect household financial stability if something unexpected happens.
By setting investment goals and timeframes, investors can invest more calmly, comfortably, and wisely. For example, when investing in mutual funds for education savings, consider conservative mutual funds such as money market mutual funds and fixed income mutual funds. For the children educational needs, investors would want to invest with low risk.
DBS Treasures is a priority banking service by Bank DBS Indonesia for customers with a minimum fund placement of IDR 500,000,000. DBS Treasures consistently personalises and communicates a comprehensive range of solutions for your easy wealth management and growth. Gain financial optimisation strategies based on in-depth analysis, trends and momentum, including mutual funds that can be tailored to your risk profile. Supported by the digital innovations of digibank by DBS Application, you can register Single Investor Identity (SID), buy, sell, and switch from anywhere, so you can make the right move at the right time confidently.