Definition of Mutual Funds: Types, Characteristics, and Benefits of Mutual Funds

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What are mutual funds? Definition of Mutual Funds is a container used to raise funds from the community of Investors to be subsequently invested in the Securities portfolio by the Investment Manager (Capital Market Law No. 8 of 1995 article 1, paragraph 27).

In other words, Mutual Funds are likened to a container owned by an Investment Manager (MI) where the container contains various types of shares.

The shares in the basket are one mutual fund with other mutual funds, depending on the recipe of each Investment Manager.

As mentioned above, Mutual Funds are a forum and pattern for managing funds or capital from a group of investors on investments available in the market through the purchase of Mutual Fund participation units.

In the Capital Market Law, the notion of mutual funds is a container that collects public funds to be reinvested by investment managers. The funds invested can be in the form of stocks, money markets, bonds or other securities.

In general, mutual funds are divided into two types: Open Mutual Funds and Closed Mutual Funds.

1. Open Mutual Funds
Open mutual funds are a type of investment that can be resold without going through a sales mechanism on the stock exchange to an Investment Management Company.

Most mutual funds today are open types with a selling price that is usually the same as the net value of assets.

2. Closed mutual funds
Closed mutual funds cannot be resold to investment management companies. The participation unit can only be sold on the stock exchange at a selling price below the asset value.

The amount of funds or assets in a mutual fund is not a large amount because of the limitations of investors to invest because of a long period.

There are 4 important elements in mutual funds that must be known by potential investors, namely:

Mutual funds are collections of funds from a pool of investors
Invested through investment instruments
Mutual funds are managed and run by professional investment managers
Mutual funds are investment tools for medium and long term funds

After knowing the meaning of mutual funds, of course you also need to know some types of mutual funds. Referring to the definition of mutual funds above, as for several types of mutual funds are as follows:

1. Stock Mutual Funds
Types of mutual funds where an investment of at least 80% of the funds they manage is in the form of shares (equity securities). Profits are generated from the potential stock effects which give higher returns in the form of capital gains due to dividend growth and stock prices.

These types of mutual funds are claimed to provide the greatest benefits, but also accompanied by high risks.

2. Mixed Mutual Funds
Types of mutual funds which have potential losses under stock mutual funds. In mixed mutual funds investments are made in two stock exchange effects at once, debt securities and equity securities, where the comparison of the two does not include fixed income mutual funds and stock mutual funds.

3. Fixed Income Mutual Funds
Mutual funds that invest at least 80% of funds managed into debt securities. The benefits that can be obtained are higher than money market mutual funds with higher potential losses as well. However, the profits remain higher than mixed mutual funds and stocks.

4. Money Market Mutual Funds
Most types of mutual funds provide low profit risk, but also with limited return possibilities. At least 80% of money market mutual funds are managed in money market effects, namely debt securities with terms of less than one year (SBIs and deposits).

5. Index Mutual Funds
Types of mutual funds whose profits and losses are in line with the index. In this mutual fund, most of the funds are managed passively, which means that there is no trading on the exchange, unless there is a new redemption or subscription.

Not complete if you know the meaning of mutual funds and their types without understanding the benefits for investors. There are some interesting benefits to joining mutual fund investments that are still an attraction and interest of investors.

The following benefits can be obtained through mutual funds:

1. Professional Management
Funds invested are managed by professional and expert Investment Managers in terms of fund management, which are generally limited in time. The role of managers here is very important for managing portfolios in mutual funds.

2. Investment Diversification
The diversification of investment can minimize the risk arising by being realized in a portfolio. Even so, it cannot eliminate the risk of investing with mutual funds.

3. Transparent Fund Management
Transparency of mutual funds can be used to monitor profits through continuous development of costs and portfolios. Fund managers will usually issue net asset values ​​every mid-year and yearly on a regular basis, so that investors can monitor their progress.

4. High Liquidity
High liquidity can increase investment success. Investors will disburse their participation units according to the provisions made by mutual funds to make it easier for investors to manage their cash.

5. Low Cost
Efficiency of transaction costs because mutual funds are a group of financiers managed professionally in line with the ability to invest.

6. Low Risk
Mutual fund investment cannot be completely eliminated from the risk of loss. However, mutual funds are still in great demand by investors, middle to up.

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