Mutual funds is the management of container and the pattern of fund / investor capital for a group to invest in investment instruments available in the market by buying mutual fund units. These funds then managed by the Investment Manager (MI) into the investment portfolio, whether it be stocks, bonds, money market or securities / other security.
Under the Capital Market Law number 8 of 1995 Article 1, paragraph (27): “Mutual fund is a container used to collect funds from the community for the next Financier portfolio invested in securities by the Investment Manager.”
From the second definition above, there are three important elements in terms of Mutual Fund are:
- The existence of a collection of public funds, both individual and institutional
- Joint investment in the form of a portfolio of securities that have diversified; and
- Investment managers believed to be the fund manager owned by the investor community.
Wealth mutual funds managed by investment managers are required to be stored in the custodian banks that are not affiliated with the investment manager, custodian bank where this will act as a collective and day care administrator.
Legal Forms of Mutual Funds
Under the Capital Market Law No. 8 of 1995 Article 18, paragraph (1), the legal form of Mutual Funds in Indonesia there are two, namely the form of Limited Liability Mutual Fund (PT. Mutual Funds) and Mutual Funds form the Collective Investment Contract (KIK).
Mutual Fund Company form (PT. Mutual Funds)
a company (limited liability company), which from the side of the legal form is no different from other companies. The difference lies in the type of business, the type of investment portfolio management business.
Collective Investment Contract
contract is created between the Investment Manager and Custodian Bank which also binds the holder of the Investor Units. Through this contract the Investment Manager is authorized to manage the securities portfolio and the Custodian Bank is authorized to implement the care and administration of investment.
Characteristics of Mutual Fund
Based on the mutual fund characteristics can be classified as follows:
Open Mutual Fund
are mutual funds that can be sold back to the Investment Management Company who published it without going through the mechanism of the effect of trade on the Stock Exchange. Its selling price is usually equal to the net asset value. Most of the existing mutual fund is an open fund.
Mutual Funds Closed
are mutual funds that can not be sold to an investment management company that published it. Closed mutual fund units can only be resold to other investors through the mechanism of the Stock Exchange trading. Its selling price could be above or below net asset value.
Types of Mutual Funds
1. Fixed Income Mutual Fund.
Mutual funds that invest at least 80% of managed funds (assets) are in the form of debt securities.
2. Mutual fund shares.
Mutual funds that invest at least 80% of the funds are managed in equity securities.
3. Mixed mutual funds.
Mutual fund with a target asset allocation ratio of stocks and securities fixed income that can not be categorized into three other mutual funds.
4. Money Market Mutual Fund.
Mutual funds are investments are invested in debt securities with a maturity of less than one year.
Net Asset Value
NAV (Net Asset Value) is one measure to monitor the result of a mutual Dana.NAB per share / unit of participation is a reasonable price from a Mutual Fund portfolio after deducting operating expenses and then divided by the number of shares / units has been outstanding (investor owned) at that time.
Benefits of Mutual Funds
Mutual Fund has several benefits that make it as one of the attractive investment alternatives include:
1. Managed by professional management
The management of a mutual fund portfolio held by the Investment Manager who are specialized expertise in fund management. Investment Manager role is very important because the individual Investors generally have a limited time, so can not do research directly in analyzing the effects of price and access to capital market information.
2. Investment Diversification
Diversification, or spreading investments embodied in the portfolio will reduce risk (but not eliminate), because the funds or assets invested in mutual funds a variety of effects that the risks were too scattered. In other words, the risk is not as big a risk when buying one or two types of stocks or individual securities.
3. Transparency Information
Mutual Funds are required to provide information on portfolio development and costs continuously, so holders of Units can monitor the benefits, costs, and risks of each Fund shall saat.Pengelola announced Net Asset Value (NAV) every day in newspapers and publishing the annual financial statements prospectuses and annual and regular basis so that investors can monitor the progress of its investments on a regular basis.
4. High Liquidity
In order to be successful investments, each investment instrument must have a sufficient level of liquidity high. Thus, Investors can melt back its participation unit at any time according to provisions made by each Mutual Fund making it easier for investors manage cash. Open mutual fund shall buy back its participation unit that is very liquid.
5. Low Cost
Because the mutual fund is a collection of funds from many investors and then managed in a professional, then in line with the potential to make these investments will generate transaction costs also efficiency.
Transaction costs will be lower than if individual investors do their own transactions in the stock.
Mutual Fund Investment Risk
For mutual fund investing, investors must know the types of risks that potentially arise when buying Mutual Fund.
1. Risk reduction NAV (Net Asset Value) Units
The decrease was caused by the market price of investment instruments that are included in the Mutual Fund portfolio has decreased compared to the initial purchase price. Causes of decline in market prices Mutual fund investment portfolios may be caused by many things, among them due to stock market performance is worse, the deteriorating performance of the issuer, political and economic situation of uncertainty, and many other fundamental causes.
2. Liquidity Risk
Potential risks of this liquidity could occur if holders of Units in one mutual fund manager had to do a particular investment fund penarikkan in large numbers on the day and the same time. Term, the Investment Manager has experienced rush (withdrawal of funds en masse) of Investments mutual fund unit. This can happen if there is a negative factor that incredible affect mutual fund investors to sell back the Units mutual funds. These extraordinary factors of a political and economic situation is deteriorating, the closure or bankruptcy of several public listed company shares or bonds to the Mutual Fund portfolio, as well as the Investment Manager dilikuidasinya company as the manager of the Mutual Fund.
3. Market Risk
Market risk is the situation when the price of investment instruments has decreased due to declining performance of the stock market or bond market drastically. Another term is the market is experiencing bearish conditions, the prices of stocks or other investment instruments prices decline drastically. Market risk that occurs will indirectly lead to NAV (Net Asset Value) which is in the Mutual Fund Units will decline as well. Therefore, if you want to buy certain types of Mutual Funds, investors should be watching the market trend of the instrument itself Mutual fund portfolio.
4. Default Risk
Default risk occurs if the Investment Manager is buying the bonds of issuers that experienced financial difficulties earlier when the company’s financial performance is still fine, so the issuers are not forced to pay its obligations. These risks should be avoided by choosing an investment manager purchasing strategy investment portfolio closely.