Understanding Mutual Funds Correctly: What Both New and Experienced Investors Need to Know

What is a Mutual Fund and Why Do People Choose It

(Mutual Fund) simply put, is when many investors pool their money together into a large fund. A professional management company, known as the (Fund Manager), manages the fund according to a set policy, and the profits generated are distributed back to each investor in proportion to their units held.

Why should you choose a mutual fund? Because:

It improves diversification of risk - General investors may have limited capital and cannot invest in many different asset types. But when pooling money with others, the increased amount allows for diversification across various assets, reducing the risk of loss from any single asset.

It is managed by experts - You don’t need to be an investment expert because a team of licensed professionals from relevant authorities manages your funds.

It is continuously monitored and supervised - The Securities and Exchange Commission oversees the fund managers’ operations, ensuring transparency and safety for investors.

Understanding Different Types of Funds to Choose the Right One for You

Funds can be classified in many ways, but the main principles are:

###By Trading Style( )Liquidity Risk(

Closed-End Fund )Closed-End Fund( - Offers units for sale only once at the start. The number of units remains fixed, and the fund has a set closing date. During this period, you cannot sell units back to the management company. If you want to sell, you must find another buyer. The advantage is that there is no immediate policy change risk like open-end funds.

Open-End Fund )Open-End Fund### - Can be bought and sold at any time. The number of units can increase or decrease according to demand. You can sell units back to the management company whenever you want. The advantage is good liquidity; the downside is that if many investors withdraw funds suddenly, the fund may need to liquidate assets to meet redemptions.

(By Investment Policy) (Return Risk)

Money Market Fund (Money Market Fund) - Invests only in deposits and short-term bonds. The lowest risk, with modest returns but stable. Suitable for those who prefer to avoid risk.

Fixed Income Fund (Fixed Income Fund) - Invests in bonds and deposit certificates. Offers better returns than money market funds, with slightly higher risk. Suitable for balancing return and risk.

Mixed Fund (Mixed Fund) - Invests in both bonds and stocks, with stocks not exceeding 80% of the portfolio. Provides moderate returns, with medium risk. Suitable for many investors.

Flexible Fund (Flexible Fund) - Invests in stocks and bonds without fixed proportions. The manager can adjust the investment mix based on the situation. Risk ranges from medium to high. Suitable for those without time to manage investments but trust the manager.

Equity Fund (Equity Fund) - Invests at least 80% in stocks. High returns but also high risk. Suitable for long-term investors.

Sector Fund (Sector Fund) - Focuses on stocks within a specific industry, such as banking or telecommunications. More volatile than the market average. Generally high profit but also high risk. Suitable for those confident that the industry will grow.

Alternative Investment Fund ###Alternative Investment Fund### - Invests in commodities like gold and oil. High risk with uncertain returns. Suitable for diversifying a portfolio away from stocks and bonds.

How to Choose a Mutual Fund That Suits You

1. Assess Your Risk Tolerance

Ask yourself: “At what percentage change in my investment value would I start to worry?” The answer might be 5%, 10%, or 20%. Use this percentage to compare with the volatility of different funds. When opening an account, there will be a KYC test to help you understand yourself better.

2. Consider the Current Economic Environment

What kind of economy? Uptrend or downturn? Are interest rates rising or falling? What is the international environment like? These answers will help you select the best fund type for the current period.

3. Study the Fund’s Prospectus

This document explains what the fund will do, its risks, and costs. Read carefully, especially the sections on investment policy and fees.

( 4. Check the Fund’s Performance History

Over the past 1, 3, 5 years, what returns has the fund delivered? Are the returns good relative to the risk? If volatility is high but returns are low, that’s not a good choice. Compare with other funds with similar risk levels.

) 5. Continuously Monitor and Adjust Your Portfolio

After purchasing, don’t leave it untouched. Track performance regularly. If the economic environment changes, you might need to switch units to another fund.

How Do Mutual Funds Generate Returns?

After purchasing units, how are profits or losses measured?

NAV (Net Asset Value) is the value per unit of the fund, calculated from the total assets minus liabilities and expenses. Whether the fund is closed or open, NAV is calculated daily after market close.

If NAV is higher than your purchase price, the difference is profit. If lower, it’s a loss. Profits or losses are only realized when you sell your units. (Referred to as Capital Gain)

Additionally, some funds distribute Dividends (Dividend) periodically when profits are available. You don’t need to sell units; dividends are paid in cash. Your actual return is the sum of Capital Gain and Dividends if any.

Summary: Mutual Funds Are a Tool for Ordinary Investors

No one is naturally skilled at investing from the start. Everyone has limitations—knowledge, experience, time, or initial capital.

But these limitations are not reasons to stop investing because letting your money sit idle is the real risk—the risk of your money losing value over time.

Mutual Funds thus become a suitable tool for you. Not difficult or complicated. The only thing left is action—start small, understand the risks, monitor performance, and take consistent small steps. Eventually, you will have an investment portfolio that satisfies you.