What is Mutual Fund? This Definition and Benefits
What is a mutual fund? Perhaps this question is asked by many people who are still new to the investment world. Many millennial generations are looking at various investment instruments, one of which is mutual fund investment.
Investing early is hoped to provide prosperity in the future so that it can guarantee life in old age for the various benefits of one's needs. In this article, we will discuss mutual funds and the benefits of mutual funds for investment in the future.
What is Mutual Fund?
Mutual funds are one of the investment instruments that can provide benefits in the future. Indirectly, mutual funds provide capital assistance to entrepreneurs managed by investment managers to minimize the impact of losses.
The working system of mutual funds is to collect public funds to be collected and then invest in companies in the form of a portfolio of securities (shares) managed by investment managers. Through mutual funds, investment is also easier because fund management is carried out directly by investment managers who already have high experience and experience.
The management of investment funds is also directly supervised by the government through the OJK (Financial Services Authority) so that investments made by the public remain safe and legal. The public can purchase mutual funds through various digital application platforms that have been widely circulated, such as seed or magic applications.
Benefits of Owning Mutual Funds
After you understand mutual funds, we will discuss the benefits of owning mutual funds. Mutual funds provide many advantages when managing funds under applicable procedures and rules. Here are the benefits if you own a mutual fund.
- Having mutual funds makes it easier for investors to invest in the capital market without having to have special skills.
- Using mutual funds will save time because you don't have to bother analyzing stocks directly. You deposit capital, and the investment manager will manage all stock analysis.
- You can start with small capital. You don't have to have a large capital to save mutual funds. You do regular savings every week or month and get the results in the long run.
- Risk is relatively small because an investment manager manages everything; with mutual funds, you can minimize the risk of loss because the capital you spend does not have to be large. For example, if you want to buy bonds that require large funds but through mutual funds, you can buy them at a low price because the funds will wait to be collected from other members to buy bond products.
Apart from the above benefits, there are many other benefits if you invest through mutual funds. You can choose all decisions according to your ability to enter the capital market through mutual funds.
Mutual Fund Risks
Like any other investment, mutual funds also have risks if you invest in the capital market this way. Here are the types of risk in mutual funds for you to know.
- Liquidity risk is the risk faced by investment managers if most unit holders sell the units they hold. Investment managers will find it difficult to provide cash for the resale.
- Default risk is when the insurance company ensures the mutual fund does not immediately pay compensation or pays less than the sum insured if something unexpected happens.
- The risk of reduced units is the risk of a decrease in the price value of securities such as stocks, bonds, and other securities.
Of the various types of risks above, all of them can be overcome by performing mutual fund risk management. Doing risk management will minimize the risk of loss in mutual fund capital.
Closing
This is our review of what mutual funds are and the benefits of mutual funds for investment. For those who want to start investing in mutual funds, you can start with minimal capital while learning how to develop your mutual funds.
Thus the review that we provide for you, hopefully, the review we provide regarding the definition of a mutual fund, can add to your insight into the investment world.
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