5 Things to know before investing in mutual fund for beginner
Yes… We are never too young to Invest, so what is the best solution? Start Now!
We do earn interest on money in savings, but it’s usually less than 1%, and that money sits in the bank. Inflation lops an average 3.87% off your money’s value every year, so you need your money to grow fast enough to outpace inflation. For most people, investing is the only way to get that kind of growth.
One of the investment alternative for the beginner is mutual funds,
- What is the mutual funds?
Mutual Fund is an instrument used to collect funds from the investors to be invested in securities portfolio by the investment manager. Mutual Fund is designed as a tool to gather fund from public that have the money and will to invest their money in financial market instruments but only have limited time, skill and knowledge.
2. Why Mutual Fund?
- Investors with a small budget can do diversification of their investment portfolio to minimize the risks
- Mutual Fund helps the investor to invest in capital market easier. Determining which good stocks to buy is not easy. It needs specific knowledge and experiences, which some investors do not have.
- Time efficiency. Since professional fund manager manages the fund invested in the Mutual Fund; investors can save they time to monitor their investment performance all the time
- Invest in the mutual fund not only potential gain benefit, but also the gain is not subject to tax .
- Liquidity, investors may redeem the units at any time according to regulation set in the prospectus and the price depends on current value price
3. The Risks of Mutual Fund
Investing is always a risk. Investing could earn you money or lose it. So we have to know and get ready for the possible risk might be happen:
- The risk of decreased value of participating unit. This risk is influenced by the decrease price of securities (stock, bond, and other marketable securities) that included in the mutual fund portfolio.
- Liquidity risk. This risk is related to the difficulty faced by the fund manager if most of the unit holders resell (redemption) their unit.The fund manager will find difficulty in providing cash for this redemption.
- Default risk. This risk is the worst risk, which can emerge when the insurance company that insures the Mutual Fund’s wealth does not pay the indemnity or pay lower than the loading value when unwanted events happen. Such as the inability to fulfill the liabilities of parties related to the Mutual Fund, brokerage, custodian bank, payment agent, or catastrophic events that cause the decrease of Net Asset Value of Mutual Fund.
4. Type of Mutual Fund
Mutual Funds allocate investor’s funds into various investment instruments to diversify and minimize risk and investor can select the type based on the risk and investment period
You’ll probably be charged fees. Investing isn’t free. If you’re working with an investment professional, you’ll pay them either a percentage of your portfolio or a flat fee (you’ll want to know if your advisor is “fee-based” or “fee-only” before you sign on), online investment platforms or “robo-advisors” each have their own fee structures, and some mutual funds and ETFs also charge fees. These fees vary, and if you do your research, you can minimize them. Usually the fees are subscription fees (buying fee), switching fees, and redemption fees (selling fees) .