Chapter 1 Recommended Investment for Beginners - Easy! Low Risk! Minimal Capital!
1. What is Mutual Fund?
Have you ever think to invest on stocks, but your saving is not enough? Mutual Fund is exist to tackle that problem. With minimum fund, we can choose from various investment products. Mutual fund present as a positive trend that is developed by professional investors.
Mutual fund is a financial product which works by gathering funds from many people then managed in the form of stocks or bonds, which profit then divided according to the investment ratio.
In the other hand, fund which was pooled from many investors into one, then the professional manager (Fund Manager) will decide the investment strategy and manage it until getting profit. The profit then shared to each investors. This is what called mutual fund.
Mutual Fund is formed as solution to people who want to invest, but not having enough capital to buy stocks or bonds. By entrusting the fund to professional investors, our investment can be managed well.
In investment world, we can expect the increase of stocks or bonds price, but in the other hand there is also risk of price decrease. In this situation, mutual fund can use the fund pooled by many people, the invested in various stocks and bonds. With the fluctuations of stocks and bonds which we invest in, then the yields are also varied, this way the investment risk can be minimized. This is the main benefit of investing in Mutual Funds.
Understanding the Flow and Mechanism of the Fund
2. How Does Mutual Fund Works?
Different Roles of 3 Institutions
Mutual Fund is managed by ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦Investment Manager CompanyÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ that is operated by Fund Manager. The Management Company then manage how merging different products into one and determining where the investment will go. How much return the investors will get is determined by this factor.
Mutual Fund that has been set up before will then sold to investors through ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦Selling AgencyÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. The Agency could be Securities Company, Bank, etc. The fund that has been pooled from investors in the form of Mutual Fund will be kept by ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦Custody BankÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. With guidance from Investment Manager, the fund will then be used to invest in capital market.
If profit can be gained, the total assets will grow. The value of the assets is called Net Asset Value (NAV). The asset growth that is received from investment will be periodically given to the investors as ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦devidenÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. There are also mutual funds that do not give devident, but accumulate it into the NAV. Good result and the selection of products that have tendency to grow considerably in value is main point in getting return as high as possible. Mutual fund is divided into what is called ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦unitÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ when doing transaction. The price of mutual fund is division between total Assets Under Management with total units present. This is what called ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦NAVÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. When the value of NAV grow compared to when we buy it, then we can also get sales profit. For example we buy when the price is Rp. 1000 for 1000 units (Rp. 1000 X 1000 = Rp. 1.000.000) and we sell when the price is Rp. 1500 per unit, this mean we get Rp.500 X 1000 units = Rp. 500.000 for return.
Can Investing in Small Amount Easily with Low Risk
- Benefits of Mutual Funds
3 Points Why Beginners Should Choose Mutual Fund
In mutual funds, there are several benefits that other investment method cannot offer.
The first one is it is relatively ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦easyÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. Mutual fund investment is managed by professional in investment field, hence we donÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’¢Ã…Â¾¢t need to analyze the information of which company that is safe to invest on and donÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’¢Ã…Â¾¢t need to worry and confused when picking which companiesÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’¢Ã…Â¾¢ stocks to buy.
Secondly, mutual fund investment can be started with ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦small amountÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. This is the main benefits of mutual fund. For example, if a stock is Rp.1000.000 per stock, then the fund needed is Rp. 1.000.000. For property investment it is even higher, this severely limit the products to choose. However, in mutual fund investment it is different. With just Rp. 100.000 someone can investing. Because of that mutual fund is perfect for beginners that only have limited fund.
Even mutual funds have less risk than buying stocks in small amount or properties. Although only in small amount, mutual fund investment can give same result from various investment products. For example, when a price of one stock is decreasing, if only rely on that stock, the investor will get major loss. However, if using mutual fund, the fund is diversified into 10 different stocks with loss ratio of 10:1, or if diversified into 100 stocks the loss ratio is 100:1. Furthermore, if a lot of individual investors cannot buy stocks from foreign market, with mutual fund a lot of products are getting accessible. Even the target and product variations getting increased, allowing the investors to get better yield from investment diversification.
Slowly, growing the fund for prosperity
4. Growing Assets in Medium or Long Period
Risk is Decreasing Along the Time
In the essence, mutual fund is intended for those who want to invest their fund over medium or long period. The reason is if compared to stock/equity investment, the return can be seen as small. For example, in stock the price movement of some stock such as blue-chip stocks can be big. If the trading is done in correct timing, the return can be huge in medium term. However, just once misstep in timing can make a great loss. In the other hand, mutual fund manage that kind of risk by diversifying the stocks and gradually increasing the assets. Small risk, small return, but as the time goes by the mutual fund gradually increasing the total amount of the fund.
Investment in medium or long period by accumulating can increase the assets and manage risk. The price of stocks and bonds that are combined in mutual fund are constantly changing. Because of that if buying equity mutual fund in a considerable amount in one time, if the stock prices in general are increasing the profit is big, but if the prices are decreasing the loss is also big. In this point, it is advised to invest gradually, because there is a time when the price is low and there is a time when it high. In the end the buying amount does not have a major impact. Buying gradually can avoid us from buying stock in high price in large amount.
Of course because mutual fund is also an investment product, there is always a risk. However, with the portfolio diversification method, the risk is getting lower thus safer for beginner investors. By investing in stock over a long period, the risk can be managed into minimal.