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Mutual Funds: How It Work, Purpose, and Types

Due to many impressions or content about investing in various media, people are becoming aware of the importance of financial planning and investment. Investment is a passive income for some people. Mutual funds are one of the many types of investment that are popular among people today.

Understanding Mutual Funds

Mutual fund investment is a managed collection of funds that aims to make investments such as stocks, bonds, and other financial instruments. Mutual funds are a suitable alternative for investors with small capital, little time, and no expertise to calculate investment risk. This investment is easy because it does not require significant money. You can do it alone, or in a group. There is also an investment manager who can help you.

Get To Know How It Works

The way these investments work is with an investment manager. This investment is divided into several company instruments or through investment verification. It allows you to be safe from loss. The investment manager will not make you lose money because the value of one company goes down. After all, it still has other instruments. This investment has broad access. It will be easier for you to learn and find investment information, the condition of the company, and the advantages and disadvantages of the flow.

Determining Investment Purpose 

Before you invest, you need to have an investment purpose first. Investment purposes can be in the form of children’s school funds, pension funds, luxury goods, and others. Investment purpose relates to the types and duration of the investment. Therefore, in investing, you must have a clear sense and understand your risk profile. Any investment must have risks and risk opportunities such as uncertain profits, resulting in a decrease in the value of the investment.

Types of Mutual Funds

The investment objective is related to the type of mutual fund that you will choose later. Some types of mutual funds are:

1. Money market mutual funds

All funds of this type will go into deposits and bonds. The term of this type is less than one year. Generally, this type is safer because the risk is relatively low compared to other types, but the potential profit is also less.

2. Fixed-income mutual funds 

Fixed-income mutual funds are the types that will go into bonds at least 80% in the form of debt securities or bonds. The goal is to produce a stable rate of return. Returns that occur are usually greater than money market type, generally reaching 10% per year.

3. Stock mutual funds

This type will place your investment funds in shares of at least 80% in the form of equity securities. The goal is for the growth of share and unit prices in the long term. Stocks will allow you to get the most profit than other types but also carry a significant risk.

4. Protected mutual funds

Like fixed-income mutual funds, your money will go into bonds that provide investment protection at maturity. This type has security on the principal value of the investment if you withdraw the funds according to a pre-agreed period time.

5. Sharia mutual funds

This type will invest your funds in various instruments such as stocks, bonds, money markets but are adjusted to the provisions and principles of Islamic sharia. The conditions and principles of Islamic sharia are like placing funds in sharia financial instruments such as sharia shares. The purpose of this type is to direct investors who want to invest their funds according to sharia.

6. Mixed mutual funds

Like the name, this type of investment funds into mixed instruments such as stocks, bonds, and deposits. The goal is price and income growth. This type of risk is quite large because of investing in stocks.

Conclusion

That’s the explanation about mutual funds. You must be intelligent, thorough, and purposeful before investing. In addition to investing, you can also invest in finance by using the Accounting System from HashMicro. You can automatically make cash flow management, financial reports and adjusting entries with the accounting system. Do it right away with a free product demo to find the right solution for you.

Interest in getting savvy tips for improving your business efficiency?

Muhammad Syahrian
Content Writer Intern at HashMicro. Passionate and hardworking person to develop my marketing skill.

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