What is a mutual fund? It's not as complicated as you think. Try understanding these 4 steps first.

Why Do We Need Mutual Funds?

Imagine you have a small amount of money but want to invest. The problem is your funds might not be enough to invest in certain assets, or you lack sufficient knowledge to choose where to invest. That’s why (Mutual Fund) exists.

Mutual Funds act as intermediaries that pool money from individual investors and manage it through professional experts, who are certified by the Securities and Exchange Commission. When funds are combined, their value increases, making it easier to invest in a variety of assets. And when returns are generated, they are distributed back to each investor proportionally to their investment.

Is Investing in Mutual Funds Truly Worth It? What Are the Benefits?

1. Proper Risk Diversification

When individual investors pool their money, fund managers can invest in different asset types simultaneously, such as stocks, bonds, or commodities. This prevents risk from being concentrated in one area and also opens opportunities for small investors to access high-level assets that they previously couldn’t afford.

2. Professional Management

No need to gather data yourself or forecast the market. Fund managers are experienced professionals registered with the Stock Exchange. They oversee the portfolio continuously.

3. Transparency and Oversight

Because of regulatory oversight, fund operations must adhere to strict rules, allowing investors to track what the fund is doing at any given time.

With these advantages, a diverse range of investors use mutual funds—from beginners, those with limited time, to those with modest capital—making mutual funds a key tool for accessing financial markets.

How Many Types of Mutual Funds Are There? Which One Is Best for Me?

Mutual funds are classified in two ways, depending on risk:

First: Based on unit holding (Liquidity Risk)

Closed-End Fund (Closed-End Fund) – Suitable for committed investors

Sold as a one-time unit at launch; afterward, the number of units remains fixed. Investors cannot sell back to the fund until the end of the term. However, this is also an advantage because managers have more time to invest without worrying about sudden sell-offs.

Open-End Fund (Open-End Fund) – More flexible

Investors can buy or sell units at any time. The fund can buy back units frequently. This is good for those needing liquidity but also presents a challenge for managers, who must keep cash ready for redemptions at all times.

Second: Based on investment policy (Return Risk)

Money Market Fund (Money Market Fund) – The safest

Invests in deposits and short-term debt instruments (with maturities not exceeding 1 year). Returns are low, but so is risk. Suitable for parking funds.

Fixed Income Fund (Fixed Income Fund) – Moderate

Invests in bonds, deposit certificates, corporate bonds, etc. Returns are higher than money market funds, but risk remains low.

Mixed Fund (Mixed Fund) – Balance between safety and returns

Invests in both bonds and stocks, with stocks not exceeding 80% of the portfolio. Suitable for those seeking higher returns but still cautious about risk.

Flexible Fund (Flexible Fund) – Managed by the manager’s discretion

No restrictions on asset allocation; managers can hold 0% to 100% stocks depending on market conditions. Suitable for those who want a professional to manage their portfolio.

Equity Fund (Equity Fund) – Fully invested in stocks

Invests at least 80% in stocks. High returns but also high risk. Ideal for investors wanting exposure to stocks but lacking time or confidence to pick individual stocks.

Sector Fund (Sector Fund) – Risky

Invests only in a specific industry, such as banking, communications, transportation. Very high risk because the fund’s performance depends heavily on that sector’s condition. Suitable for those with industry knowledge and clear market views.

Alternative Investment Fund (Alternative Investment Fund) – For risk-tolerant investors

Invests in gold, oil, agricultural commodities, etc. Highly volatile, suitable for those with high risk appetite and diversification needs.

Among these various funds, there is no “correct” choice for everyone. Only the option that fits each individual’s situation at a given time.

What Should You Prepare Before Opening a Mutual Fund Account?

Once you decide to invest, the next step is choosing the right fund.

1. Assess your risk tolerance

The key question is: How much decline in your investment value would make you anxious or lose sleep? Take the KYC test that all asset management companies require clients to do, to help answer this question more easily.

2. Review the overall economic outlook

When the economy expands, investors might increase stock holdings. When it contracts, they might shift to bonds. Understanding the general environment helps you make better decisions.

3. Read the fund’s prospectus

You don’t need to read the entire document, but check the sales conditions, fees, and return calculation methods to understand the fund’s structure beforehand.

4. Compare past performance

Funds with good returns, low volatility, and proper diversification are better options.

5. Follow and adjust according to circumstances

When conditions change, it may be time to switch from one fund to another.

How Do You Know if You’re Making a Profit or Loss After Buying?

After purchasing units, investors often want to know whether they are in profit or loss.

Funds do not trade every second. For example, open-end funds calculate their price only once a day. The value of units is calculated based on NAV (Net Asset Value), which is the total assets minus liabilities and expenses, calculated at the actual market prices of assets at the close of each trading day.

If NAV is higher than when you bought, you are in profit; if lower, you are in loss. But this profit or loss is not final until you actually sell your units.

Additionally, some funds distribute dividends (Dividend) periodically, allowing you to receive returns without selling units. Total returns thus include both Capital Gain (profit from appreciation) and Dividend (dividends).

In Summary: It’s Never Too Late to Start

It’s true that no one is born an investment expert. Limitations in knowledge, experience, time, or even initial capital are no longer reasons to give up on participating in the financial markets.

Mutual funds are designed for these people—helping them access financial markets that once seemed distant. And if you worry about doing nothing, your money will gradually lose value due to inflation. That concern is now eliminated.

Because mutual funds are simple and straightforward tools. The rest is just about taking the plunge. Most importantly, you must start by understanding and choosing the fund that suits you.