Written by Ilham Indra, Marketing Communication at PT Korea Investment Management Indonesia. Reviewed by Compliance before publication.
The question that comes up most before buying a mutual fund is not about returns. It is about trust: where does my money go, and who holds it.
This article answers that by tracing the flow step by step, from your account to a portfolio of securities.
How Does a Mutual Fund Work?
A mutual fund works by pooling money from many investors into one portfolio managed by an investment manager, while all the cash and securities are held by a separate custodian bank. Investors receive Participation Units whose value follows the portfolio's net asset value.
Who Are the Parties Involved?
Party | Role | Holds the money? |
|---|---|---|
| Investment manager | Makes investment decisions under the prospectus | No |
| Custodian bank | Holds cash and securities, calculates net asset value | Yes |
| Selling agent | Channels subscriptions and redemptions | No |
| Financial Services Authority | Licenses and supervises | No |
That last column is the heart of the protection. The party making investment decisions is not the party holding the money.
What Happens When You Buy?
You transfer money to the custodian bank account in the fund's name, not to the investment manager's account.
The purchase is recorded at the prevailing net asset value per unit, following the cut-off rules in the prospectus.
The custodian bank issues a confirmation showing how many Participation Units you received.
The investment manager places that money into the portfolio under the investment policy.
What Happens When You Sell Back?
You submit a redemption for a number of Participation Units through a selling agent or the investment manager.
The value used is the prevailing net asset value per unit, following the cut-off rules in the prospectus.
The investment manager sells some securities if needed to meet the redemption.
The custodian bank pays the money to your account within the period set in the prospectus.
Payment is not always immediate. The period is set in the prospectus and should be read before buying, particularly if the money might be needed at short notice.
Where Does the Change in Value Come From?
The value changes because the prices of securities in the portfolio change, not because of any promised interest. That change is reflected in the net asset value per unit calculated by the custodian bank on every trading day.
A full explanation of net asset value is available in our article on the subject. Past performance does not guarantee future performance.
About the Manager
PT Korea Investment Management Indonesia is an investment manager registered with and supervised by the Financial Services Authority under licence number KEP-50/D.04/2019, operating in Indonesia since 2019
Frequently Asked Questions
Whose account does my money go to?
The custodian bank's account in the fund's name, not the investment manager's. That separation is the most fundamental protection in the structure.
Who makes the investment decisions?
The investment manager, following the investment policy in the prospectus. The manager does not hold investors' money.
How long does redemption take?
The period is set in each product's prospectus and is not always immediate. Read the terms before buying.
Does the number of investors affect my holding?
No. Incoming money adds assets and units outstanding in the same proportion, so net asset value per unit is unchanged by it.
What does a selling agent do?
A selling agent channels subscriptions and redemptions. It does not manage the portfolio and does not hold investors' assets.
Why is the price known only after the transaction?
Because net asset value per unit is calculated after the market closes. Purchases are recorded at the value applying under the prospectus cut-off rules.
Next Steps
Understand net asset value, the figure that sets what your holding is worth.
See the range of funds managed by PT Korea Investment Management Indonesia on the Products page.