For novice investors, choosing a mutual fund that suits your needs can be confusing. From selecting an Investment Manager from dozens of options, to choosing the type of mutual fund, to deciding between conventional or Sharia mutual funds.

The practical approach that comes to mind is to sort by the highest percentage, right? But is this wise? We explain everything below.

Determine your risk profile first

Every investor has different abilities and different personalities. Since finances are one of the factors that affect our well-being, it is strongly recommended to determine your risk profile first. You can take a simple test that we provide at http://dev.syailendracapital.com/goals-planner.

Understand the different types of mutual funds and their recommended uses

Of course, we want to choose a mutual fund with a high percentage return. But does this suit your needs? For example, Money Market Funds are suitable for preserving value and can be used for emergency funds. Meanwhile, Equity Funds, which are volatile but provide substantial returns, will be quite effective for savings.

Make sure you have read the Prospectus and Fund Fact Sheet

The Prospectus is basic information about all aspects of a mutual fund and the Investment Manager that manages it. The contents of the prospectus are as follows:

• Information about the Investment Manager: contains an explanation of the Investment Manager company that will manage your funds.
• Information about the Custodian Bank and account number: contains information about the Custodian Bank that will hold your money and an explanation of the account number.
• Information about mutual fund fees: an explanation of the various fees in a mutual fund, such as subscription fees, redemption fees, switching fees, auto-debit fees (if applicable), transfer fees and others.
• Information about the type and investment policy of the mutual fund: an explanation of the type of mutual fund and the investment management company's policy in managing customer funds.
• Information about mutual fund risks: an explanation of the potential risks involved in mutual fund investments.
• Information about investor obligations and rights: information related to investor rights and obligations. For example, investors have the right to receive a transaction confirmation letter, monthly reports, NAV/Unit price information and so on.

Meanwhile, the Fund Fact Sheet (FFS) is a document that contains the performance and brief description of the mutual fund. In the FFS, you will find:

• Information on the amount of assets under management and units issued. You can find the Net Asset Value and Units at the end of the previous month. Typically the fund fact sheet is delayed by 1 month. For example, if it is currently December, the latest fund fact sheet would be the November fund fact sheet.
• Information on the price and performance of the mutual fund, shown in time periods of 1 month, 3 months, year to date (from the beginning of the year to today), 1 year, 3 years and since inception.
• Information on performance comparison or performance benchmarking between the mutual fund product and an index. For example, Equity Funds typically compare their performance against the IHSG (Indonesian Composite Index).
• Information on the mutual fund portfolio, which contains details of asset allocation in the portfolio.
• Information on risk, expressed through statistical analysis such as Standard Deviation and Beta.

In the Fund Fact Sheet, you will see a graph of the mutual fund's growth fluctuations. A mutual fund projecting high returns will certainly have quite drastic price fluctuations and make your heart race. This is where your decision is tested—whether the graph pattern matches your risk profile or not :)

Good luck!

Also read:

Why choose mutual funds instead of investing directly in the capital market?

How to start investing in mutual funds from scratch?

Are there taxes applicable to mutual funds?