What are the 5 key points you should know before opening a mutual fund account

Why Mutual Funds Have Become a Popular Investment Tool

When you have a certain amount of money and want to make it work for you, but lack confidence, time to monitor the market, or have saved a small amount, mutual funds might be the right answer.

What is a Mutual Fund? Essentially, it is a system of pooling (Pooling) where fund managers gather money from many individual investors to create a large pool of funds, then invest in various assets according to a set policy. The returns generated are then divided equally among investors based on their proportion of the invested assets.

Thanks to many advantages, this tool has gained popularity:

Advantage 1: More Effective Risk Diversification

If you invest your own money alone, it might not be enough to offset losses in certain assets or types. But when combined with others, the pooled funds can be spread across multiple areas, reducing risk.

Advantage 2: Managed by Professionals

Fund managers must be certified by regulatory authorities and possess sufficient knowledge and experience to forecast and manage risks. You don’t have to do everything yourself.

Advantage 3: Continuous Control and Oversight

Regulated by the Securities and Exchange Commission, your money is safe and transparent.

Types of Mutual Funds

There are many funds in the market, but they are mainly categorized into 2 groups:

Based on Trading Characteristics

Closed-End Fund (Closed-End Fund) - Sells units only once at the start; after that, there are no buyback programs until the end of the project. If you want to sell early, you need to find a buyer yourself. The advantage is that managers can plan long-term strategies more effectively.

Open-End Fund (Open-End Fund) - Can be bought and sold on any trading day during market hours. Prices are calculated based on the net asset value of each day. If you need cash quickly, you can sell back immediately. The downside is that managers need to maintain reserves to support redemptions.

Based on Investment Policy

Money Market Fund (Money Market Fund)
Invests in deposits and short-term debt instruments. Low returns, very low risk. Suitable for those who want to keep their money safe while earning interest.

Fixed Income Fund (Fixed Income Fund)
Invests in government bonds, state enterprise bonds, corporate bonds. Moderate returns, moderate risk. Suitable for those seeking higher returns than savings accounts but still want minimal risk.

Mixed Fund (Mixed Fund)
Invests in both stocks and bonds, with stocks not exceeding 80%. This is a middle level, ideal for beginners who are just starting to invest in stocks but are not fully confident.

Flexible Fund (Flexible Fund)
No restrictions on stock investments. Managers can adjust the proportion between 0-100% stocks based on market conditions. Risk is relatively high, suitable for those who accept volatility and lack time to adjust their portfolios.

Equity Fund (Equity Fund)
Invests primarily in stocks, at least 80% of the portfolio. High returns, high risk. Suitable for investors with a long-term horizon and risk tolerance.

Sector Fund (Sector Fund)
Focuses on stocks within a specific industry, such as banking, PTT, transportation. High risk but also high return potential. For investors who forecast growth in a particular sector.

Alternative Investment Fund (Alternative Investment Fund)
Invests in gold, oil, agricultural commodities. Very high risk but helps diversify away from stocks and bonds. However, there is no “one-size-fits-all” fund suitable for everyone at all times; each individual must find the right mix for themselves.

5 Steps Before Opening an Account and Investing

Step 1: Know Yourself to Understand Your Risk Tolerance

Ask yourself: If your investment decreases by 10%, 20%, 30%, are you comfortable or worried?

The percentage you can comfortably accept is your “risk tolerance.” Use this number to compare with the volatility (volatility) of each fund.

Step 2: Study the Global Economy First

Is the market currently bullish or bearish? What is the trend of interest rates? Where is inflation heading? These factors will help you decide which assets to invest in.

Step 3: Read the Prospectus Carefully

When you have 2-3 suitable funds, study details such as fees, payout methods, investment policies, and redemption conditions.

Step 4: Review Past Performance

Funds that have delivered good returns, low volatility, and proper diversification are interesting. Don’t forget to look at data from the past 3-5 years.

Step 5: Monitor and Adjust Continuously

After investing, don’t just sit back. Sometimes, you need to adjust your portfolio based on economic changes and your personal life.

How to Calculate Returns for Open-End Funds

Once you buy units, your focus is on profit and loss.

Measuring the value of your investment is crucial: NAV (Net Asset Value) or net asset value per unit, calculated as:

NAV = (Total Assets - Liabilities - Expenses) ÷ Total Units Outstanding

NAV changes daily, depending on the value of assets held by the fund.

If NAV > Purchase Price = Unrealized Gain (Unrealized Gain)
If NAV < Purchase Price = Unrealized Loss (Unrealized Loss)

This profit or loss becomes “realized” (Realized) when you sell your units.

Additionally, some funds distribute dividends (Dividend) periodically, which you receive without selling units, providing returns while still holding your investment.

Total return = Capital Gain + Dividends

Three Cautions to Keep in Mind

1. Fees Can Eat Into Profits - Management fees, promotional costs, redemption fees. If total exceeds 2-3% per year, it could be problematic.

2. Past Performance Does Not Guarantee Future Results - Good past results don’t mean future performance will be the same.

3. Funds Do Not Eliminate Risk, Only Reduce and Diversify It - You still bear the risk according to your chosen investment.

Summary: Why Should You Care?

No one is without limitations—whether in knowledge, time, or capital. Not investing is a greater risk, as your actual money continuously loses value.

Mutual funds are designed to help ordinary people invest easily and without hassle. Just choose what suits you and start.

Opening an account for an open-end fund is no longer difficult; the only thing left is your decision to take action.