6 Mutual Fund Investment Risks and Ways to Overcome Them

Mutual fund investment is the latest investment chosen because it has a variety of attractive advantages. However, apart from the advantages, the risks of investing in mutual funds also need to be considered. That's because the benefits and risks in any investment instrument must go hand in hand.

For that you need to know what are the risks of mutual funds for a smooth investment. By understanding the risks, you will also understand how mutual funds work. This is the discussion.

Is it Safe to Invest in Mutual Funds?

Investing in mutual funds is considered safe because mutual fund selling agents must have permission to offer mutual fund products. The process of obtaining a permit is quite strict.

In addition, there are quite a number of legal mutual fund investment applications in Indonesia. You will definitely find it easy.

What are the Risks of Mutual Fund Investment?

It is necessary to know the risks of investing in mutual funds so that you can think of the right strategy to overcome them. Below are the risks of investing in mutual funds that you must know.

#1. Inflation risk

The risk of investing in mutual funds that can occur is the risk of inflation. This will reduce your ability to provide capital for mutual funds due to rising consumer goods.

#2. Liquidity risk

Another risk that needs to be considered is the difficulty of investment managers disbursing mutual fund investment funds quickly. Especially when cash availability is inadequate.

The investment manager must provide logical reasons why the funds submitted are delayed. You also have to be willing to wait until the money from the mutual fund can be withdrawn.

#3. Political and economic risks

It can be said that mutual funds are influenced by the course of the economy and political turmoil that exist in a country. When the macro economy declines, it can cause a decline in the value of all mutual funds.

That's why you are advised to pay attention to the latest economic and political news so you don't miss out on the policies and regulations made by the government.

#4. Default risk

Also known as default risk. This risk occurs when issuers who work closely with investment managers in providing mutual fund products are unable to settle their obligations.

An example that can be taken is the risk of fixed income mutual funds. DFG Company issues bonds with a mutual fund system. However, the company was unable to repay the promised principal and coupons due to financial problems.

#5. Net Asset Value (NAV) Risk

The value of mutual funds is seen from the NAV or Net Asset Value which is influenced by the value of the assets it carries.

An example is the value of stock mutual funds which is affected by the prevailing stock price at that time. Equity mutual funds are known as a type of mutual fund with a value that is always changing, so it is high risk. You have to be prepared for such risks.

#6. Market risk

Several types of mutual funds are influenced by capital market dynamics. This is a risk that is difficult for you to avoid.

Mutual fund values ​​can also decrease when the capital market is bearish, and vice versa. You must be prepared for this risk that can happen at any time.

1. Diversify

Diversification is one way out to overcome the risks faced in investing in mutual funds. As you know, mutual funds are influenced by the dynamics of the capital market.

To diversify, you need to look for instruments outside the capital market such as P2P lending, gold, foreign exchange and others.

2. Use of cold money as capital will help

Any investment should be done with cold money. The point is money that you don't use for any purpose, so it can be easily used to invest.

The way to have cold money is that you can provide special cold money savings that are different from ordinary savings. Later when it has been collected, then you can channel it into investment instruments.

3. Choose an instrument according to the risk profile

To reduce risk, you can choose low-risk mutual funds such as money market mutual funds. It means that you are in the conservative investment risk profile category.

Or choose a fixed income mutual fund that is at moderate risk and generates regular income. This is because the instruments used are bonds. For this category you enter the moderate risk profile.

It doesn't matter if you want to get high profits, but remember that the risks are also high. You can choose stock mutual funds. You also enter the category of aggressive investors.

Conclusion

There are various kinds of mutual fund investment risks, but you can also provide various strategies to deal with them. Find out your risk profile first so you can find the right mutual fund.