Understanding Before Placing ₿ in a Mutual Fund: 5 Things You Need to Know About Investing in Mutual Funds

What is a Mutual Fund for Beginners

Imagine you have 10,000 Baht but want to invest in a large variety of assets. The problem is you don’t have enough money or time to choose. This is where mutual funds come in to help.

It’s a mechanism where fund managers pool money from many investors into a large fund, then invest according to a set policy. The returns are divided proportionally based on your contribution. Fund managers must be experts and certified by regulatory authorities, allowing you to access assets that you couldn’t reach on your own with your own capital.

Why Invest in Mutual Funds

1. Diversify Risk Without Studying

By pooling money, the fund can invest in various assets, from stocks, bonds, commodities, to foreign securities. You don’t need to make decisions yourself; the fund manager handles it.

2. Professional Management of Your Money

There’s a risk that the fund might be liquidated or undergo major changes, but oversight committees review the fund, giving investors confidence that their money is managed legally.

3. No Need to Watch Your Phone All Day

For busy people, mutual funds involve fewer transactions than stocks or direct trading because trading occurs once a day (. In the case of open-end funds ), you don’t have to sell during late hours.

How Many Types of Mutual Funds Are There?

Divided by Redemption of Investment Units

Closed-End Funds (Closed – End Fund)

• Sold only once at the start
• Fixed number of units throughout the project period
• Redeem only once at the specified time
• If you want to sell before, you must do so outside the system
• Suitable for long-term investors who don’t want to move their money frequently

Open-End Funds (Open – End Fund)

• Sold continuously
• Investment units and fund size can increase or decrease based on buying and selling
• You can redeem for cash whenever needed
• Reduces liquidity risk for investors
• No fixed closing date

Divided by Investment Policy

Money Market Funds (Money Market Fund)

• Invest in deposits and short-term debt instruments (≤1 year)
• Low returns but the lowest risk
• Suitable for saving money or risk-averse investors

Fixed Income Funds (Fixed Income Fund)

• Invest in government bonds, corporate bonds, bank bills
• Moderate returns, low risk
• Suitable for conservative investors

Mixed Funds (Mixed Fund)

• Invest up to 80% in stocks and the rest in bonds
• Moderate risk, moderate returns
• Suitable for beginners or those seeking balance

Flexible Funds (Flexible Fund)

• Adjust stock-bond ratio from 0-100% based on market conditions
• Managers increase stocks when the market is good, reduce when the market is weak
• Suitable for those who want growth but lack time to adjust their portfolio

Equity Funds (Equity Fund)

• Invest ≥80% in stocks
• High returns, high risk
• Suitable for investors ready to accept volatility

Sector Funds (Sector Fund)

• Invest in stocks within a single industry (banks, communications, etc.)
• Returns fluctuate with the industry’s performance
• High risk, suitable for those with a specific industry outlook

Alternative Investment Funds (Alternative Investment Fund)

• Invest in commodities, gold, oil, agriculture
• Highly volatile, highest risk
• Suitable for diversifying into alternative assets

No fund is perfect for everyone or every time. Each person should find a mix that matches their risk appetite.

5 Steps Before Opening a Mutual Fund Investment Account

1. Self-Assessment: How Much Risk Can You Tolerate?

All asset management companies (AMCs) will ask you to do a KYC test before opening an account. To simplify, ask yourself: “If my money changes by 10%, 20%, 30%, how worried will I be?” Your answer indicates the percentage risk you’re comfortable with.

2. Get an Overview of the Thai or Global Economy

Check whether the market is booming or resetting. Which assets are worth investing in? Which should be avoided? This knowledge helps you choose smarter funds.

3. Read the Fund’s Prospectus

Narrow down your choices and read details: trading conditions, fees, investment policy, target returns. Make sure you understand clearly.

4. Review Performance: Relationship Between Returns and Volatility

Print out the 3-year and 5-year performance of funds you consider good. Compare which fund offers the best returns with acceptable volatility, achieving a balance.

5. Continuous Monitoring and Evaluation

As the economy and markets change, you may need to switch units. It’s not a one-time purchase and then forget.

How Do You Calculate Returns After Investing in Mutual Funds?

After buying units, most investors want to know: “If the NAV (Net Asset Value) changes, did I make a profit or loss?”

How is NAV Calculated?

NAV = (Total assets held by the fund at the end of the day - liabilities and expenses) ÷ total units outstanding

If you bought at 10 Baht and now it’s 12 Baht, the difference of 2 Baht is profit, but it’s unrealized until you sell your units.

Two Types of Returns

1. Capital Gain: The difference from buying and selling (NAV fluctuations)
2. Dividend: Payouts distributed periodically by the fund, without selling units

Total return = Capital Gain + Dividends (if the fund provides both)

Summary: Why Start Investing in Mutual Funds Today

No one is an expert at investing from the start. Everyone has limitations: not enough money, not enough time, or lack of knowledge. Mutual funds are the answer to these problems.

Another point often overlooked: Not investing is the biggest risk. Leaving money idle causes its value to decline annually due to inflation. Investing in mutual funds is simple and doesn’t require constant management; the fund manager will do it for you when the time comes.

That’s all for the 5 things to know before investing in mutual funds. When you’re ready to take the next step, the only thing left is to take action.