Risk in mutual funds arises when the NAV per Unit decreases. You will purchase a mutual fund in the form of units. The NAV per Unit in a mutual fund will fluctuate as it can be affected by several factors. For example, a decline in the prices of equities, bonds, securities or other assets, causing the Net Asset Value (NAV) to fall. Additionally, under certain conditions, liquidity risk can also occur in mutual funds.

Liquidity risk in mutual funds can occur if too many investors carry out redemptions of the units they hold. The presence of this risk actually encourages the Investment Manager to deliver the best possible performance so that the number of redemptions does not surge.

Meanwhile, an unavoidable risk is a change in economic and political conditions. Since Indonesia adopts an open economic system, this means the Indonesian economy is highly vulnerable to changes in the international economy. The performance of companies in Indonesia, including those listed on the Indonesia Stock Exchange (BEI), will be affected by changes in economic and political conditions both domestically and internationally. Therefore, the performance of a mutual fund's portfolio will be indirectly affected.

Finally, there is of course the fundamental risk that can occur when an investment manager purchases bonds from an issuer that is experiencing financial difficulties. Yet previously, the company's performance was still sound. With this risk in mind, the Investment Manager will naturally be encouraged to be even more careful in selecting issuers.

Also read:

What happens if the Investment Manager company goes bankrupt?

Are mutual funds safe and protected by the government?

Why choose mutual funds over investing directly in the capital market?