Learn about the different types of mutual fund investments, from money markets to stocks, and find the right choice for your financial goals.
Mutual fund investment has become one of the popular investment options in Indonesia, especially for novice investors who want to manage their funds without having to be directly involved in making complicated investment decisions.
Mutual funds allow you to invest by purchasing units of participation managed by professional investment managers. With funds diversified in various investment instruments, mutual funds offer the opportunity to gain profits with more manageable risks.
There are different types of mutual funds available in the market, and each has different characteristics according to the goals and risk profiles of investors.
In this article, we will discuss 10 types of mutual fund investments that can help you understand more about this investment option, so you can choose the type that best suits your financial needs and goals.
1. Fixed Income Mutual Funds
Fixed income mutual funds are a type of mutual fund that focuses on investing in bonds, both government and corporate bonds. Most of the funds managed in this mutual fund are used to buy debt securities that offer fixed returns or interest paid periodically.
Fixed income mutual funds offer the potential for higher returns than money markets, but with greater risk. Typically, this type of mutual fund is suitable for investors who want higher returns than the money market but do not want to take as much risk as in stock mutual funds.
2. Stock Mutual Funds
Equity mutual funds are a type of mutual fund that invests most of its funds in stocks of companies listed on the stock exchange. This type of mutual fund offers high profit potential because stocks have the potential for significant value appreciation in the long term.
However, stocks also have higher volatility, which means the risks associated with these investments are greater than with money market or Fixed Income Mutual Funds.
Equity mutual funds are very suitable for investors who have a high risk profile and long-term investment goals, and are ready to face major market fluctuations.
3. Mixed Mutual Funds
A mixed mutual fund is a type of mutual fund that combines investments in stocks, bonds, and money market instruments in one portfolio.
The allocation between stocks, bonds, and money markets can be adjusted according to the investment manager’s strategy and the mutual fund’s objectives.
This type of mutual fund offers better diversification, reducing the risks associated with stock market fluctuations, but still providing the opportunity to earn greater returns compared to money market or fixed income mutual funds.
Mixed mutual funds are suitable for investors who want a balance between potential returns and risk.
4. Index Mutual Funds
Index mutual funds are a type of mutual fund that aims to reflect the performance of a particular index in the stock market, such as the LQ45 or IDX30 stock index.
Investment managers in index mutual funds seek to manage portfolios that are in line with the composition of stocks in the targeted index, rather than actively selecting stocks.
Index funds offer lower costs because they do not require as much stock analysis and research, and have lower risk than active stock funds. This is a great option for investors who want to invest in the stock market more cost-efficiently and without having to select individual stocks.
5. Sharia Mutual Funds
Sharia mutual funds are mutual funds that are managed based on Islamic sharia principles. This type of mutual fund only invests funds in instruments that comply with sharia provisions, namely instruments that do not involve usury (interest) and businesses that are considered haram according to Islamic law.
Sharia mutual funds can be in the form of sharia money market, sharia fixed income, or sharia stocks, depending on the investment focus chosen.
This mutual fund is suitable for investors who want to invest in accordance with sharia principles, while still expecting potential profits from the capital market.
6. Open Mutual Funds
An open-ended mutual fund is a type of mutual fund that allows investors to buy and sell investment units at any time. This means that investors can buy or sell open-end mutual fund units at a price determined daily based on the mutual fund’s net asset value (NAV).
The main advantage of open-ended mutual funds is their flexibility, allowing investors to withdraw funds at any time. However, the buying and selling price of the units depends on the performance of the managed portfolio.
7. Closed Mutual Funds
Unlike open-end mutual funds, closed-end mutual funds have a more limited investment period and do not allow investors to withdraw funds before the specified time period.
Usually, closed-end mutual funds are issued through a public offering process and their units can only be traded on the secondary market.
Closed-end mutual funds are generally used for long-term projects or investments and are suitable for investors who are ready to invest for a longer period.
8. Money Market Mutual Funds
Money market mutual funds are a type of mutual fund that invests most of its funds in money market instruments, such as deposits, money market securities (SBPU), and other short-term instruments that have a maturity of less than one year.
Money market mutual funds tend to offer a low level of risk because they are managed in highly liquid and safe instruments.
The advantage of money market mutual funds is their high liquidity, which allows you to withdraw funds at any time without worrying about losing significant investment value.
Although the profits obtained are not as large as other types of mutual funds, money market mutual funds are very suitable for those looking for low-risk investments and stable returns.
9. ETF Mutual Funds (Exchange-Traded Funds)
ETF mutual funds are a type of mutual fund that is traded on a stock exchange, similar to stocks. Like index funds, ETFs aim to mirror the performance of a particular index, but their units can be bought and sold on the stock market throughout the day.
ETF mutual funds are suitable for investors who want to invest in a particular stock index in a more flexible and liquid way, and have lower costs compared to traditional mutual funds.
10. Sustainable Investment (ESG) Mutual Funds
ESG (Environmental, Social, and Governance) mutual funds are a type of mutual fund that prioritizes investment in companies that meet sustainability standards, such as companies that care about the environment, are socially responsible, and are managed with good governance.
ESG investing is growing in popularity among investors who care about the social and environmental impact of their investments. This mutual fund is suitable for investors who want to invest while supporting companies that carry out responsible business practices.
Mutual fund investments offer many options that can be tailored to your financial goals and risk tolerance. From safer options like Money Market Mutual Funds to riskier stock funds, there are many different types of mutual funds that can help you achieve your investment goals.
It is important to understand the characteristics of each type of mutual fund and choose the one that best suits your investment profile. By choosing the right type of mutual fund, you can get optimal results while managing risk well.