For those who are still laymen, index funds and stock funds may be believed to be the same. Especially for novice investors who have just heard about these 2 investment products. However, although they are believed to be the same, in fact the two are relatively out of sync as a result it is crucial to understand what the difference is.
Both types of investment products are very suitable for militant investors or those who have a high risk profile. In addition, this product can also be a perfect choice for those who are preparing for long-term financial goals.
Difference Between Index Fund and Stock Fund
Although it is considered to have a high relative risk, but the return on output according to index funds and stock funds is equally high. Optimal investment results will be obtained in the current period between five to 10 years.
Before starting to set to invest, try to understand first how it works according to the mutual fund product to be selected. That way, investment activities carried out can put optimal output returns later.
For that, let’s see what are the disparities according to the 2 types of mutual funds in the following review.
Investment Asset Management
The first thing that distinguishes between index funds and stocks is in the portfolio management according to each of these products. Although both managed by the investment manager or MI, but the treatment is not the same.
In managing stock mutual funds, MI will perform product optimization using some in-depth research before making investment decisions. Including, among others, research on the performance of a company, current economic growth, to the performance of the exclusive stock sector.
Meanwhile, in the management of index funds, MI uses an exclusive stock index as a reference. For example, according to SRI-KEHATI, IDX30, and LQ45.
From the reference index obtained, MI will then allocate a synchronous investment portfolio using the one indicated on the reference index in question. This investment activity is then often considered to be a passive management tactic.
The reason is, because MI does not need to actively manage the investment portfolio. That way, MI no longer needs to spend time and energy doing in-depth research.
Asset composition and performance
Stock mutual funds are generally composed according to the composition of preferred stocks according to the Mi concoction which is certainly relatively out of sync using index mutual funds. As a result of the disparity in composition, it is likely that stock mutual funds can have better performance than the market, but can also vice versa.
So, investors need to have a good experience to choose the best stock mutual fund option that is predicted to beat the market.
Meanwhile, index funds have a noticeably synchronous performance using market benchmarks, for example the MSCI Index, IDX30, SRI-KEHATI and so on. That way, investors will be spared according to a number of risks, for example, obtaining conventional mutual funds using performance at a relatively distant market bottom.
Costs incurred by investors for Asset Management
The next difference between index funds and stock funds is contained in the management port that must be borne by the investor. Usually, the management fee charged for index funds is much smaller than using stock funds.
Why is that? The reason is because the sale and purchase of shares carried out by MI only at exclusive times. For example, when coincident using index adjustments as a result porto asset management this investment tends to be much more mini .
Investment risks faced by investors
Another thing that relatively creates index funds and stock funds out of sync is in terms of risk. Although both include high risk investment assets, the risk according to index mutual fund instruments only refers to an index.
Of course, this is relatively out of sync using stock mutual fund investment products. The reason is, the performance of investment products is highly dependent on the performance of MI In terms of investment portfolio management.
When an MI management company is not or less able to optimize the allocation of investment asset instruments, then the performance according to the investment product will not result in maximum output.
Transparency Of Investment Asset Portfolio Management
The next disparity that relatively creates index funds and stock funds are not in sync according to the transparency of the allocation of each product portfolio. For example, investors can monitor their portfolio of investment assets in SRI-KEHATI index mutual funds using only the reference index, namely SRI-KEHATI.
From the list of stocks in the reference earlier, investors can see exclusively the investment funds allocated to any product.
While on stock mutual fund investments, MI management generally only put a number of news in general. Related to using the funds it manages through a monthly report that is considered a Fund Fact Sheet or FFS.
In the report, generally there are still facts that inform the performance of investment products at a percentage. In FFS, only the assets of the top holding or the most shares will be listed.