Is a fund right for you? Know 4 important things before investing

Why Invest in Funds Instead of Just Saving Money?

Mutual Fund (Mutual Fund) is a collective investment scheme where many investors with limited capital pool their money into a single fund. This creates a larger pool of funds for professional management. The fund manager, certified by the Securities and Exchange Commission (SEC), will find ways to grow your money.

When the fund earns profits from investments, it distributes returns to each unit holder proportionally to their investment, making money growth easier than gambling in the market.

What documents are good for investing in mutual funds?

1. Risk reduction through diversification

Small retail investors with limited funds cannot invest in various assets like foreign markets or assets requiring huge capital. But by pooling money, fund managers can diversify across different asset classes, so if one fund underperforms, others may perform well.

2. Managed by experts

General investors may lack time, money, or knowledge to systematically research markets. Fund managers, however, must pass exams and be certified by government agencies. With their experience and expertise, they can manage your money better than investing alone.

3. Continuous oversight and control

It’s not easy to expect a fund to protect your money, but the SEC continuously evaluates each fund’s management, ensuring transparency and accountability.

Who is it suitable for? New investors, those with limited funds, people without time, or even seasoned investors who want to include funds as part of their portfolio.

What type of fund suits you?

Thailand has many securities companies and fund management firms, each managing vast amounts of funds. They can be categorized into two aspects:

Aspect 1: Trading capability

Closed-End Fund (Closed-End Fund) - Can only buy once and sell once

• Fixed number of units from the start
• If you need cash before the end, you must find a secondary market yourself
• Advantage: fund managers don’t need to worry about outflows mid-term

Open-End Fund (Open-End Fund) - Can buy and sell daily

• Units increase or decrease continuously
• Flexible cash conversion, suitable for those needing liquidity
• Slightly more work for fund managers as they need to prepare cash for redemptions daily

Aspect 2: Investment policy

Money Market Fund (Money Market Fund) - Lowest risk

• Invests only in deposits and short-term debt instruments (maturity ≤ 1 year)
• Returns are interest-based, very stable
• Known as a “safe haven” for risk-averse investors

Fixed Income Fund (Fixed Income Fund) - Low to moderate risk

• Invests in government bonds, treasury bills, bank deposits, corporate bonds
• Offers better returns than savings accounts but still relatively safe
• Suitable for diversifying risk alongside equity funds

Mixed Fund (Mixed Fund) - Moderate risk

• Invests in both debt and equities, with equities not exceeding 80%
• Provides reasonable returns, not overly predictable
• Ideal for beginners wanting to experience investing but not ready to take full risk

Flexible Fund (Flexible Fund) - Moderate to high risk

• No restrictions on stock holdings; can hold 100% equities if market conditions favor
• Managers adjust allocations based on market forecasts—more stocks in uptrend, switch to bonds in downturn
• Suitable for those without time but want professionals to “manage” the market for them

Equity Fund (Equity Fund) - High risk

• Invests at least 80% in stocks
• Returns fluctuate with the market, but higher potential gains
• For those who accept volatility and lack time to pick stocks themselves

Sector Fund (Sector Fund) - Very high risk

• Invests in stocks within a specific industry, e.g., banking, telecom, transportation (at least 80%)
• Returns depend on the growth of that sector; can outperform when the sector grows but underperform when it declines
• For investors who believe certain industries will grow in the future

Alternative Investment Fund (Alternative Investment Fund) - Highest risk

• Invests in commodities like gold, oil, rice, or agricultural products
• Prices are volatile, so the fund’s value fluctuates accordingly
• Suitable for those wanting to invest in these assets without opening dedicated accounts

In reality, there is no single “best” fund. The right fund is the one that suits you at this moment.

4 steps before opening a fund account

Step 1: Know your risk tolerance

Questions like “What do you think about your 100,000 baht turning into 80,000 overnight?” tell you how much risk you can handle.

All securities firms require clients to complete KYC (Know Your Customer) to assess risk. Be honest here.

Step 2: Look at the overall economic picture before investing

What phase is the stock market in? Are interest rates high or low? What is the government’s policy? Is the global economy active or sluggish? This information helps you choose the right assets at the right time.

Step 3: Read the fund’s prospectus

Once you understand yourself and the economic outlook, read the details about trading, liquidity, and payout methods of the fund you’re interested in.

The prospectus contains comprehensive, truthful information. Read it carefully.

Step 4: Check past performance

Review:

• The fund’s returns over 1, 3, 5 years
• How well it recovered during market downturns
• The volatility of its returns

Choose funds with good performance, low volatility, and well-diversified risks.

Step 5: Monitor regularly

After investing, keep track and periodically evaluate your investment. As the economy changes, you may need to switch funds or adjust your portfolio.

Where does fund return come from?

Once you buy units, your investment fluctuates because open-end funds can only be traded once a day at the end-of-day price. To know if you made a profit or loss, check the NAV (Net Asset Value).

How is NAV calculated?

• Sum of all assets held by the fund (valued at current market prices)
• Minus liabilities and expenses
• Divided by total units outstanding = NAV per unit

If you buy 1 unit at 10 baht and the NAV is 12 baht, you have a 2 baht profit. But the profit is only realized when you sell.

Besides capital gains, some funds also pay Dividend (dividends), distributed periodically, without needing to sell units.

For example, a stock fund that pays dividends from the companies in the fund will accumulate and distribute dividends to unit holders (Dividend Payout).

Summary: Why invest in funds?

No one is born an expert in investing. Everyone must learn. The problems are:

• No time
• No knowledge
• Limited initial capital
• Not knowing where to start

Mutual funds solve all these issues. Fund managers help you manage, diversify risks, and regularly review your investments, so you don’t have to worry.

In fact, the greatest risk is not investing at all because your money will gradually lose value due to inflation.

Funds are a simple tool for ordinary people. The only thing you need to do is start taking action.