I often get asked by friends and family: “How do I start investing if I don’t understand or follow Markets?” Have you ever asked a similar question? I can immediately answer that leaving your hard-earned money in your savings account is not the right way to go about it.

The concept of Reksa Dana is often misunderstood, and we feel it represents a lost opportunity for retail investors like you and me to save meaningfully. Let’s clarify a number of major misconceptions surrounding reksa dana, and explain why we’re big a fan of this vehicle.

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#1 Reksa Dana is A Risky Form of Investment

Fiction. What is a Reksa Dana? A Reksa Dana (or Mutual Fund), is essentially a legal entity and vehicle that pools together people’s money forming a fund to be invested for a purpose.

There are different types of Reksa Dana.  For example, a Reksa Dana Pasar Uang invests in short-term bonds and deposits (bonds that mature <1 year) - appropriate for those with a short investing horizon, while a Reksa Dana Campuran has the flexibility of investing in stocks, bonds and deposits of up to 79% of the portfolio at any given time - appropriate for those with a longer investing horizon. 

Similar to how sports cars and trucks are both vehicles that are created for different purposes, reksa dana (depending on type) may implement different strategies.

The objective, characteristics and guideline of each reksa dana is typically found in the prospectus (each reksa dana publishes a prospectus), which are publicly available.

Therefore, while reksa dana is simply a vehicle, investors need to closely pay attention to the investment strategy and objectives each reksa dana implements.

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#2 Reksa Dana Locks Up My Capital

Fiction. Most reksa dana are daily liquid and carry no lock ups allowing investors to subscribe and redeem at any time. This especially applies to Money Market Funds (Reksa Dana Pasar Uang), Fixed Income Funds (Reksa Dana Pendapatan Tetap), Multi-Asset Funds (Reksa Dana Campuran) and Equity Funds (Reksa Dana Saham). 

A few caveats: 

  • Fund managers or Distributors may implement an agreed ‘lock-up’ period to incentivize investors to stay invested longer by offering discounts on management fees, or when a reksa dana is packaged with an insurance product.

    This is where it’s important to read the terms and conditions of the product investors are buying.  That said, principally most conventional reksa dana are daily liquid and carry no lock-ups.
  • There are closed-ended or non-conventional reksa dana, such as Reksa Dana Terproteksi, KIK-EBA (Securitized Products) or DIRE (Real Estate Fund) that may warrant a lock-up period.
  • Even reksa dana saham (or equity mutual funds) offer daily liquidity, however given the volatility and risk investing in equities, many fund managers recommend holding the fund over a longer time horizon.

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#3 Reksa Dana is Not Regulated

Fiction. Every Reksa Dana is registered with the OJK, and moreover, fund managers who manage Reksa Dana are required to be licensed and supervised by the OJK. In fact, the business of managing reksa dana is extremely regulated. This is because Reksa Dana are open to all public investors. Investors are able to check the legitimacy of a reksa dana through the OJK official site.

Fund managers have to report the fund’s daily NAV, and every type of reksa dana has a set of strict guidelines to follow - i.e. a money market fund (Reksa Dana Pasar Uang) can only invest in bonds and deposits with <1 year tenor. 

Investors are also able to track their holdings (under their own name!) as well as fund performance through a dedicated portal built by KSEI (the Central Custodian agency) called AKSes.

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#4 Reksa Dana Requires You to Start with A Lot of Money

Fiction. Investing in a single Reksa Dana requires only a minimum of IDR 100,000 or even Rp. 10,000 for certain funds.  Having said that, we think longer term investors should invest a meaningful amount of their savings in order for it to grow.

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#5 Reksa Dana is Not Transparent

‍Fiction - but also Fact. Every Reksa Dana is required to publish its daily NAV, meaning investors can track the value of their investments every day. Reksa Dana investors also receive a monthly factsheet that highlights performance, size and top holdings of the fund.

Having said that, we think at Simpan this is not enough. Investors deserve to know how and where their money is being invested, throughout each month. This is especially important if, for example, markets face a downturn in the middle of the month and investors are left wondering what is happening to their portfolio. We think it’s important to stay engaged with our investors regularly.

As a soon-to-be Simpan investor, you’ll receive periodic updates from our expert investors on where and how your money is being invested.

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#6 Reksa Dana Can be Managed by People You Don’t Know and Trust

‍Fact. Always do your own research. Look into 1) the profile of the asset manager and the individuals responsible, 2) how much they manage, and 3) track record are all important details to review.

While we believe past performance doesn’t tell us much about the fund’s ability to perform in the future, like trophies in a cabinet it highlights the achievements of the fund manager. Having said that, even an established fund manager that manages a large amount and has a good track record doesn’t guarantee good performance in the future.

It’s also important for investors to look into the investment strategy and risk profile of the fund. Some funds have generated high returns in the past, but are prone to volatility or price fluctuations and may not be for everyone. 

If there is an opportunity to discuss with the investment manager about how the fund is managed we would recommend it to understand their investment strategy and how they are positioned in the current market environment.

Key points to highlight the advantages of investing through a reksa dana:

  • Convenient on taxes. Reksa Dana tax is final and reduces the hassle of listing down each investment line item in an investor’s yearly SPT tax filings.
  • Safe and secure. Investment managers and reksa dana are required to be licensed and supervised by the OJK. Investor’s money are also placed in a dedicated custodian bank account (under the investor’s name) and not under the Investment Manager’s name.
  • Cost efficient. Transaction and administrative fees are shared among all investors in the fund. Furthermore, for Bonds and Deposits, the collective pool of funds allow managers to negotiate better prices or rates.
  • No lock-ups. Conventional Reksa Dana are daily liquid, so investors can put in and take out their hard-earned money any time.
  • Managed by experts. Reksa Dana is managed by professional investors and typically backed by an army of research analysts and a strong infrastructure - great for the rest of us who don’t have much time to look into their investments daily. At Simpan, we conduct independent research, review market movements and opportune times to buy and sell, and conduct research attribution analysis to understand how we’re performing - where we are wrong or right, to continuously improve.
  • Diversified out of the box. Investing in a Reksa Dana offers investors instant access to a diversified portfolio of investments. Depending on the type of reksa dana, funds have limits to how much of a single security they can have in the portfolio, thereby reducing concentration risk.