Choosing a type of mutual fund is not about which one returns the most. It is about which portfolio suits your time horizon and your tolerance for fluctuation.
This article sets out the five types with their portfolio contents, typical horizons and risk profiles, then closes with how to match one to a goal.
The Five Types at a Glance
Type | Portfolio contents | Horizon | Risk profile |
|---|---|---|---|
| Money market | Instruments maturing under 1 year and deposits | Under 1 year | Lowest |
| Fixed income | At least 80 per cent debt securities | 1-3 years | Low to moderate |
| Balanced | A mix of debt securities, shares and money market | 3-5 years | Moderate |
| Equity | At least 80 per cent shares | Over 5 years | Highest |
| Index | Tracks a reference index | Follows the index asset | Follows the index asset |
The minimum allocations shown follow the rules applying to each type. The details always appear in each product's prospectus.
Who Is a Money Market Fund For?
A money market fund places money in short-dated instruments and deposits. Its fluctuation is the smallest of the five, so it is commonly used for money that may be needed soon.
Small fluctuation does not mean no risk. The value can still fall, and money market funds are not covered by deposit insurance.
Who Is a Fixed Income Fund For?
A fixed income fund is dominated by debt securities. Its value moves with the prices of the bonds in the portfolio, which move inversely to interest rates.
It is commonly used for one- to three-year goals by investors willing to accept more fluctuation than a money market fund.
Who Is a Balanced Fund For?
A balanced fund combines debt securities and shares in one portfolio. The mix gives the investment manager room to adjust proportions to market conditions, within limits set by the prospectus.
Who Is an Equity Fund For?
An equity fund is dominated by shares and fluctuates most of the five. It is commonly used for goals more than five years away.
Greater growth potential comes with a greater possibility of decline, including over extended periods.
Who Is an Index Fund For?
An index fund builds its portfolio to match a reference index. The aim is not to beat the index but to follow its movement as closely as possible.
How Do You Match a Type to Your Goal?
Decide when the money will be used. The horizon determines the type, not the other way round.
Decide how large a fall in value you could accept without being forced to sell.
Match both against the table above to narrow the options.
Read the prospectus of whatever remains, particularly the investment policy, costs and risk factors.
This article does not rank which type is best. An investment manager licensed by the Financial Services Authority does not rank investment products through educational content.
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
How many types of mutual fund are there?
Five main types: money market, fixed income, balanced, equity and index. What distinguishes them is what sits in each portfolio.
Which type is the safest?
Money market funds fluctuate least, but that does not mean no risk. Value can still fall, and they are not covered by deposit insurance.
Which type suits a beginner?
No type is specifically for beginners. What matters is when the money will be used and how much decline can be tolerated.
How do balanced and index funds differ?
A balanced fund combines several asset classes in proportions the manager can adjust. An index fund builds its portfolio to match a reference index.
How long should an equity fund be held?
Equity funds are commonly used for goals more than five years away, because they fluctuate most of the five types.
Can one person hold more than one type?
Yes. Combining types is common when matching a portfolio to several goals with different horizons.
Next Steps
Understand how a mutual fund works before choosing a type.
See the range of funds managed by PT Korea Investment Management Indonesia on the Products page.