What Should be Taken Into Consideration Firstly is Cost
When comparing mutual funds, always use ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦Fund SearchÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ facility on Morningstar website. For Indonesian readers this facility also present in Pasardana.id website. Guide on how to use it will be explained in next sub-chapter, by using this facility also we can compare various product with display as picture bellow.
This time, as practice before going directly into practice, let us compare<A Fund><B Fund><C Fund>. From these three mutual funds, do you think which one is the best?
First, letÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’¢Ã…Â¾¢s compare it from Cost point of view.
When predicting performance in the future, a lot of people are stuck on ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦approximately how much return that can be achieved?ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. This is of course important, but no matter how good the past performance, it still cannot guarantee the same performance in the future.
Different with performance prediction, when buying mutual funds we better know how much Cost we will spend. The size of the Cost latter will have quite an impact to the investment return that we get. Because of this, we cannot just shrug the Cost off. So what is Cost?
Cost in mutual fee are divided into 2 types. The first one is Cost when buying mutual funds (Subscription fee), and second is Cost that is paid annually (Management fee). The longer the investment period, the bigger Management fee will impact the performance, hence when comparing mutual fund products, let us also pay attention to Management fee that we are going to pay yearly.
If we see the Management cost, <B Fund>at 0.70% is on lower level compared to other 2. From this point of view, B Fund is the best.
1. Cost Point of View ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬¦<B Fund>wins
DonÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’¢Ã…Â¾¢t get tricked by ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦how big the return is last year?ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬!
Next, we will continue with Risk dan Return point of view.
Please take a look at comparison table below (same table). Return show performance level, and Sharpe Ratio show efficiency level of the investment. From those points we can see the balance level of Risk & Return of those mutual funds.
(Same table)Let us compare Risk & Return
In the table, there are 4 past periods on Return and Sharpe Ratio. Which number that should be the benchmark?
When comparing mutual funds, it is common for people to as ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬ÃƒÆ’Ã¢â‚¬Â¦how much the return last year>ÃƒÆ’Ã†â€™¢ÃƒÆ’¢Ã…Â¡¬. This is not wrong, we want to know how much the investment amount can rise in near time. In this experiment, if we take a look at the comparison, A Fund mutual funds come as winner on 1 Year Return with 80% increase.
However, despite in short term of 1 year the fund show a miraculous performance, if it only for temporarily then it is meaningless. This means, choose mutual funds which have stable performance increase in long term. Because of that, always compare the long term performance for making sure of the Risk and Return.
Kemudian, mari kita perhatikan Return 10 Tahun(periode. Jika diamati, yang paling unggul adalah <C Fund> dengan nilai sebesar 8.00%.
Next, in Sharpe Ratio value, we also need to make sure the efficiency of the investment. In this part, if possible, pay attention to 10 years Sharpe Ratio, in this regards C Fund once more come on the top.
From previous Risk and Return, we can assess that C Fund is the best.
2. Risk and Return point of view, <C Fund>Wins
Comparison done so far is, the low Cost of B Fund is good, but from Risk and Return C Fund is better. A fund is sidelined because not superior in any sides.
From 2 mutual funds that remain, which one will be the last one standing?
Next: Choosing Mutual Funds pt. 3