If you are currently planning to diversify investment by investing in mutual funds, you should first learn about the rules of the game. Thus, you can devise a more thorough investment strategy in the future.
According to financial planner Annissa Sagita from Aidil Akbar Madjid & Partners, there are few things you need to note.
A risk profile is a benchmark of your resistance level to the risks lurking in your investment. There are many contributing factors that influence risk profiles, including experience in investment, mindset, occupation, environment, etc.
For example, you never make an investment. Your risk profile may be conservative, which means not dare yet to take risks. That said, you should start with the lowest risk investment instrument. To be more certain, you can fill the form of risk profile provided by an Investment Manager (IM)
Investment objectives are important to determine which appropriate mutual fund type fits you. These objectives should cover the maturity date. Knowing how long your investment period can prevent you from suffering a devastating fall.
The characteristics of each type of mutual fund are varied from one another. Therefore, the shorter the term, the more conservative or the safer the instrument you choose, vice versa.
As of February 2018, data from the OJK suggests a total of 830 conventional mutual fund products are available in Indonesia. It certainly is not easy to find the best product that meets your needs. This is why learning about the products prior to purchasing a mutual fund is imperative.
Having a complete and all-round of the products can also prevent your judgment veered by the customer service/front office rep serving you. Because, some of them may have a specific sales target. There’s a possibility that they’re selling you insurance instead of mutual funds. Not to mention that you may understand better about mutual funds than the customer service/front office reps who serve you.
Investing in a product that is strictly regulated by the OJK doesn’t guarantee it is risk free. Every investment product involves different risks. These risks include reduced NAV if there is a corresponding decline in stock and bond prices or if there is a bond default and declining JCI.
Another risk is the liquidity risk which is caused by a lack of ready cash to properly handle redeeming investor transactions. Such risks must be completely acknowledged prior to investing in mutual funds.
How Mutual Funds Work
Of course you should understand what and how a mutual fund works. Avoid making a purchase solely based on a friend/colleague/family testimony, because the risk profile and investment objectives vary from person to person.
Know the Product and its Costs
In mutual funds, investors will incur few administrative costs including subscription fees, redemption fees, switching fees, and bank transfer fees.
Generally, subscription fee is incurred on the initial purchase of mutual fund participation unit. Redemption fees are charged upon redemptions of participation units (withdrawal).
Switching fees are a transaction fee to switch from one mutual fund to another operated and managed by the same Investment Manager. These costs are varied and set by the Investment Manager, but you should as well ensure that said cost is not higher than those listed in the prospectus.