What is a Mutual Fund? Types, How it Works, and Advantages

financialtreat – will explain about What is a Mutual Fund? Types, How it Works, and Advantages which you will get in the following article. let’s look at this article carefully!

As a millennial, it seems that you have to realize what mutual funds are. The reason is, in times that are already sophisticated and have technology, people are increasingly open and assessing investment is important.

Of course, not for the near future, but in the long term which will later bring prosperity to life, especially in financial terms. Therefore, it is only natural that mutual funds are one of the profitable investments that are liked by many novice and expert investors.

What is a Mutual Fund? Types, How it Works, and Advantages

After that, what is a mutual fund by definition, type, and how does it work? Instead of being curious and guessing, in this article, all the information will be reviewed in full specifically for you. Check it out together, come on!

What is a Mutual Fund?

For those of you who are not familiar with mutual funds, this is basically an investment instrument, where the return is higher than a deposit. Even so, the value of the return depends on the type of mutual fund taken.

Moreover, investment is also not only profitable, but also synonymous with risk. Therefore, you need to know in advance and make sure what instruments are tailored to your risk profile before investing.

The goal itself is to understand, which is to minimize the risk of losses that may occur, and also maximize the profits that can be obtained. That way, the wealth you have will continue to grow.

Well, there are also three types of risk profiles or characteristics of investors that you need to know. Where, one of them is likely to be your characteristics, namely:

  • Aggressive, is a characteristic of investors who dare to accept big risks. You with this risk profile are advised to invest in stock mutual funds, because they can provide additional large returns but are also directly proportional to the same large risks.
  • Moderate, is the nature of medium investors who cannot accept large risks, but want to get incalculable profits. If you get into this line, then you can have a mixed mutual fund.
  • Orthodok, is a carrier of investors who are afraid of risk. In a sense, you with this risk profile can still invest by pouring money into fixed income mutual funds and the money market as the right choice.

By being aware of these three risk profiles, you will realize which type is tailored to you, and how much loss you can bear.

Types of Mutual Funds

After in the previous discussion you already understood the basic news about what mutual funds are, then in this discussion you will understand the types that are popular in Indonesia because they can provide additional big profits. Arbitrary? Here’s the review.

1. Looking at What Money Market Mutual Funds Are

The first mutual fund model that is the least risky, namely the money market. This is none other than because most of the funds are allocated to the securities sector whose maturity is under one year, such as Bank Indonesia certificates and deposit certificates.

Although this mutual fund has minimal risk, it still provides a large enough additional profit, precisely above the deposit interest. Therefore, this mutual fund is the best choice for novice investors.

2. Fixed Income Mutual Funds

Finally there are fixed income mutual funds. Here, investors’ funds will be poure into government-owne bonds and currency, as well as money market instruments whose movements are more stable, such as long-term debt securities whose value fluctuates. Therefore, this mutual fund remains conducive to the play of novice investors with a moderate profile, as it offers considerable returns with little risk.

3. Mixe Mutual Funds

Not only the two types above, there are also mixe mutual funds. It is calle that way, because its investment funds will be divide into several sectors, namely stocks, bonds, and the rest of the money market. Well, because there are funds that go into the stock product, the risk can be said to be quite high compare to the previous two types of mutual funds. However, this risk is also quite small when compare to stock mutual funds, because the composition is not very much.

4. Be Clear What a Stock Mutual Fund Is

The last type of mutual fund, which is stocks. If you don’t understand what a stock mutual fund is, so this is one of the investment instruments that many investors choose with militant characteristics. The reason is, the principle of this mutual fund is high risk high return.

That way, the acceptable risks and profits are equally large. Moreover, most of its investment funds are allocate to stock instruments and the rest to the money market. As additional info, shares are securities on the ownership of the value of a company. In order, stock investors have the right to manage the company. It’s just that the amount of the management rights portion adjusts to the number of shares owne.

How Mutual Fund Investment Works

If you are intereste in investing in mutual funds, it seems that you also have to understand how they work, not just the meaning of mutual funds, models, and risk profiles. The reason is, this is one of the factors that determine your success in investing. Although, mutual fund investment itself is actually not as complicate as direct stock investment, because the funds you have will later be manage by a professional investment manager company.

Thus, you just have to entrust the funds you give, and also wait for the coffers of wealth to be mountainous in your account. However, if you want to know and clearly how this investment works, let’s look at the following outline of the sequence.

Investment Managers Receive Funds From Investors

Funds already given to the investment manager will be allocate to a number of instruments according to the deal. Finally, investors will receive an investment report from the investment manager company regarding the gradual growth of the investe funds. The content of the report is in the form of product performance, asset composition, and also an influence portfolio.

Those are some of the news you already know about mutual funds. How about it, now you are no longer confuse about what is a mutual fund and similar info? If yes and it makes you intereste in entering the world of investment, then you can first choose the type of mutual fund you want. However, if you want to play conducively by avoiding the risks that may occur, then you can try investing in gold.

Read more wealth management:

Advantages of Money Market Mutual Funds

The following are some of the advantages of investing in money market mutual funds:

  • Very Low Level of Risk: Money market mutual funds offer very low investment risk as all allocations of investment funds are usually place on money market instruments with low fluctuations.
  • Returns: The rate of return /Return on money market mutual funds tends to be stable due to the convoy of non-fluctuating value of money market instruments (Generally 3-5Propenses per year). The profit potential of money market mutual funds is generally greater than that of deposits.
  • Because the profit/return on money market mutual funds depends on how much funds are investe. Unlike deposits that have interest that has been set by the bank.
  • Very Small Initial Capital: Investment capital is very affordable and starts from tens of thousands of Rupiah only. Generally, the initial investment capital of money market mutual funds starts from IDR 50,000 – IDR 100,000. But because of its popularity, now there are also those who provide starting from IDR 10,000 via online applications.
  • Flexible Investment Period: The investment period of money market mutual funds is relatively flexible. Because it can be done for the short term (Less than 1 year) or long term (More than 5 years).
  • High Liquidity Level: Investment funds can be searche at any time in. A matter of days (High asset liquidity). This is likely to be done because the investment period. Of money market instruments is carrie out in a short time. Thus, the company’s ability to pay debt. Obligations can be fulfille very quickly. You will also not be charge penalties or fines. When disbursing investment funds faster.
  • Tax Free: Money market mutual funds are not tax objects. So that the returns or returns receive by investors are completely free from taxes.
  • Conducive and Supervise by the Ojk: The management of money market mutual funds. In Indonesia is very conducive because it has been supervise. By the Financial Services Authority.

Well, those are some reviews that discuss what mutual funds are, hopefully this article can help you and thank you.

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