Must-Know 4 Important Things Before Opening a Mutual Fund Account: The Complete Guide

Start by Understanding the True Nature of Mutual Funds

(Mutual Fund) plays the role of an intermediary that pools funds from many individual investors into a single fund managed by investment professionals. These fund managers are officially certified and registered with the Securities and Exchange Commission to ensure maximum safety and confidence for investors.

Once the funds are pooled, the fund manager invests according to the predetermined policy, aiming to achieve the highest returns while maintaining risks at an acceptable level for investors. When returns are generated, they are shared back to each unit holder proportionally based on their invested amount.

4 Essential Things to Know Before Investing

1. Assess Your Risk Tolerance

For beginners, measuring risk tolerance can seem complicated. The easiest way is to complete a KYC assessment required by all asset management companies before opening an account.

Another helpful method is to ask yourself, “How much change in my investment portfolio would make me worried?” The percentage answer will serve as a personal gauge to compare against the volatility of various funds later.

2. Study the Overall Economic Context

Before choosing a fund, spend time studying the current economic conditions, such as interest rates, inflation, and market trends. This information will help you select the most suitable assets and reduce the scope of funds you need to consider.

3. Review the Details in the Prospectus

When combining your risk tolerance with economic assessments, the number of suitable funds becomes limited. The next step is to study trading conditions, liquidity, payout methods, and fee structures outlined in each fund’s prospectus to clearly understand their investment policies.

4. Check Past Performance

After filtering funds to the best options, it’s essential to review their past performance. Look for funds with consistent returns, low volatility, and appropriate risk diversification.

Advantages of Investing in Mutual Funds

The reason mutual funds have become increasingly popular is due to several benefits:

Better Risk Diversification - Small investors with limited capital can access a wider range of assets, including foreign assets or high-investment assets. Pooling resources makes it easier to build a diversified portfolio.

Professional Management - Since fund managers are registered and supervised by the stock exchange, investors benefit from professional, experienced, and trustworthy management.

Transparency and Oversight - Continuous oversight by the Securities and Exchange Commission ensures that your investment is properly managed, providing peace of mind and confidence.

Types of Mutual Funds

Based on Redemption Liquidity Profile(

Closed-End Fund )Closed-End Fund( - Sold only once at the initial offering when raising capital. The number of units remains fixed throughout the fund’s life. Redeemable only once at a specified time. The downside is high liquidity risk, but the advantage is reduced risk of capital outflows.

Open-End Fund )Open-End Fund( - Can be bought and sold at any time, offering high flexibility. The fund size can increase or decrease based on investor transactions. The convenience is good liquidity, but managing fund capital becomes more complex.

) Based on Investment Policy###

Money Market Fund (Money Market Fund) - Invests in deposits and short-term debt instruments with maturities of less than 1 year. Returns are expressed as interest. Lowest volatility and risk, suitable for cash preservation or low-risk appetite.

Fixed Income Fund (Fixed Income Fund) - Invests in deposits, government bonds, state enterprise bonds, bills, certificates of deposit, and corporate bonds. Offers higher returns than money market funds but still maintains low risk. Suitable for diversification alongside other asset classes.

Mixed Fund (Mixed Fund) - Invests in both debt and equity securities, with equity allocation not exceeding 80%. Suitable for moderate risk-takers, including beginners in the stock market lacking experience.

Flexible Fund (Flexible Fund) - Invests freely in debt and equity without restrictions on proportions. Managers can adjust equity up to 100% or reduce it based on market outlook. Suitable for moderate to high risk-takers and those without time to manage their portfolios.

Equity Fund (Equity Fund) - Primarily invests in stocks, with at least 80% in equities. Offers high returns but with high volatility. Suitable for investors seeking stock exposure without managing it themselves.

Sector Fund (Sector Fund) - Invests in stocks within a specific industry, such as banking, communications, or transportation, with at least 80% of the portfolio. Returns and risks are higher than average market levels. Suitable for high-risk investors or those with deep industry insights.

Alternative Investment Fund (Alternative Investment Fund) - Invests in commodities, gold, oil, agricultural products, with high price volatility. Highest risk and return, suitable for high-risk tolerance and diversification into alternative assets.

No single fund is suitable for everyone; each individual must find the right mix according to their circumstances at different times.

Monitoring and Evaluating Post-Investment Performance

( Continuous Performance Monitoring

After opening an account and purchasing units, it’s crucial to continuously track performance. If economic conditions change, you may need to switch units or adjust your portfolio to suit the new situation.

) Return Calculation

Fund returns come from two sources:

Capital Gain - The change in NAV ###Net Asset Value###, calculated from the total asset value minus liabilities at the market close of that day. If the NAV when you sell is higher than when you bought, the difference is profit, and vice versa.

Dividend - Distributions paid periodically without selling units. Investors should consider both sources to evaluate total investment returns.

Summary and Decision-Making

No one is born an investment expert. The role of mutual funds is to help turn those disadvantages into advantages—whether it’s limited knowledge, experience, time, or initial capital.

When these limitations are no longer obstacles, and considering that letting money lose value due to inflation is a significant risk, starting to invest through mutual funds is a smart decision. The most important thing is not which fund to choose but to take action. Successful investing is half about understanding yourself, and the other half about starting correctly.