You often hear a saying “do not put all your eggs in 1 basket”. This wise saying teaches you to be aware and be careful. If you have many eggs, spread your eggs into several baskets to lower the possibility of your eggs breaking at the same time.
The same rule also applies for investment. Mutual Fund is one way to spread your investment “eggs” or generally known as investment diversification. Then, why Mutual Fund is the way to diversify your investment?
By definition, Mutual Fund is an instrument to gather funds from the community; it is managed by the legal law called investment manager, to be invested to other financial assets such as stocks, bonds, and other money market instruments. Investing the funds to several financial assets is the form of the investment diversification process.
In Mutual Fund, all the funds available is not be kept by the investment manager, but it will be kept by a party called the Custodian Bank. Furthermore, the Custodian Bank also functioning as the administrator who records and gives confirmation on all Mutual Fund transactions (buy and sell), it also calculates Mutual Fund’s Net Asset Value (NAV) every day.
Net Asset Value (NAV)) is the value reflecting the total wealth of Mutual Fund every day. Other than the market value of the Fund itself, NAV value is also affected by the Mutual Fund buying and selling transactions performed by the investors.
If you buy the Fund, then the Custodian Bank will give a confirmation showing the unit amount of your ownership you have. The unit is a measurement showing your ownership in the Fund. That unit amount will not change as long as you do not purchase any Mutual Fund. The number of units you get will depend on the price of NAV per unit on the day you purchase the Fund.
NAV per unit is the price obtained from the NAV of a Mutual Fund divided by the total units on that day. The NAV per unit is issued daily in several media, including this website. Please note that a high value of NAV per unit of the Fund does not reflect that the Fund is too expensive, and vice versa. Generally, a high NAV per unit shows the Fund has been set up long ago so its assets have experienced a high increase.
Please refer to the illustration bellow to gain more understanding about the Mutual Fund transaction:
On 3rd July, 2007 you bought Danareksa Mawar Mutual Fund IDR 10 million. The NAV/ Unit of Danareksa Mawar on that day was IDR 2.546,87. Therefore, the number of unit you have is 10 million/2,546.87 = 3,926.3880 units.
On 18th February, 2008 you sold all your Mutual Fund. The NAB/ Unit of Danareksa Mawar on that day were IDR 5,214.84. Hence, the total investment you gained is 3,926.3880 X 5,214.84 = IDR 20,475,485.
Mutual Fund Fees
1. Subscription Fee
The Subscription Fee is charges made against each of your purchases of a Mutual Fund, where you are given the opportunity to choose whether to place additional funds in the amount of the subscription or request that it be deducted from your placed investment. The applied subscription fee depends on each of the Mutual Fund product.
2. Redemption Fee
You will be charged a Redemption Fee at each time you redeem your Mutual Fund, and is directly deducted from your redeemed funds. As such, you are not liable to make any other payments. The amount applied Redemption Fee depends on each of the Mutual Fund products.
3. Management Fee
The Management Fee is a compensation amount made payable to the Investment Manager for the services rendered in managing the Mutual Fund. This is calculated based on the Fund’s Net Asset Value made by the Custodian Bank, not you, and is inclusive in the Fund’s published daily Net Asset Value.
4. The Custodian Fee
The Custodian Bank Fee is also a compensation amount made payable to the appointed Custodian Bank for the services rendered in administering the Fund, and is calculated based on the Fund’s Net Asset Value. As with the Investment Manager Fee, this fee is also inclusive in the Fund’s published daily Net Asset Value.
© 2008