5 Important Things To Consider When Choosing Mutual Funds
“To choose the best mutual fund, there are a few things to consider and easy to do even by newbie investors.”
Did you know? One of the investment instruments used as an option for those of you who are still beginners is mutual funds. It is affordable and managed by professionals, which is fund managers.
When this article was written, there were 3,984 mutual fund products in Indonesia based on data from OJK.
A lot, right?
But don’t worry, Moduers! Because, here, we will share five essential things that you have to know before choosing the best mutual fund for you. Let’s read right away!
- Performance Persistence
The first thing to consider in choosing a mutual fund is the performance persistence you can find inside the fund fact sheet. Take a look at the performance in the last 5 years.
The picture above is a part of the fund fact sheet from Bahana Dana Likuid money market fund (BDL). On the chart of the fund’s performance since its launch, the mutual fund’s performance is indicated by a red line while the benchmark is marked with a gray line.
A good fund is indicated by the higher performance than the benchmark continuously in various market conditions, except for index funds aiming to resemble the benchmark. To choose a good index fund, you can see it from its performance below the benchmark. A part of the fund fact sheet shows the performance of index funds from Principal Index IDX30 below.
On the historical performance chart, the Principal Index IDX30’s is shown with a light blue color, and the benchmark is marked with a dark blue color.
2. Risk Ratio
This risk ratio needs to be known for the mutual fund’s efficiency by comparing the yields’ risk levels. The comparison between the risk and the yield is known as the Sharpe ratio. The higher the Sharpe ratio means the more optimal performance and efficiency of a mutual fund. The Sharpe ratio of each mutual fund product can be seen in the “Products” section on the web or in the Moduit app, as shown below.
3. Invested Asset Under Management or AUM
Moduers, have you ever shopped at a market place? If you pay a little bit of attention, you will find that every online shop in the market place will display the number of buyers who have shopped at the store. The more people shopped at the store, especially if the buyers give them five stars, the store is trusted.
The same principle applies to the amount managed by the fund manager or Asset Under Management (AUM). The more significant the AUM is, the more investors trust them. And it would be even better if the asset under management continued to increase consistently from time to time.
Based on OJK’s regulation Number 23 / POJK.04 / 2016 concerning Mutual Fund in the Collective Investment Contracts, the minimum managed fund for a Mutual Fund is IDR 10 billion.
4. Management Team
Another important thing in choosing a mutual fund is knowing the fund manager’s track record by reading the prospectus, which contains information about the permits and licenses that have been obtained by the fund manager, custodian bank, and the people involved in mutual fund management.
5. Expense Ratio (management costs)
Moduers, when investing in mutual funds, several fees are charged to investors such as administrative fees, brokerage fees, custodian bank fees, et cetera. Therefore, to make it more profitable, you can choose a mutual fund with a lower expense ratio than the expense ratio of other mutual funds. You can check each mutual fund’s expense ratio by checking its fund fact sheet, too.
That’s it, Moduers! 5 essential things to know before choosing mutual funds. These five things have also taken as a reference by the Moduit Team to select the best mutual fund in Moduit, only for you.
This selection process uses the PRIME model. If only you pay attention to the initial letter of every important aspect that Momin wrote above, you will find out that it forms PRIME.
Apart from being used as a reference when selecting the best mutual fund products at Moduit, Moduit Team also continues to closely monitor the mutual fund and fund managers who cooperate with Moduit.
So, at Moduit, you can invest safely and comfortably.
If you find this article useful and helpful, please don’t hesitate to share this article with your friends and start investing in mutual funds safely here.
See you in the next article, Moduers! Salam Moduit!
Disclaimer: The images above are only for illustration purposes. It is not an investment recommendation.