The Complete Beginner's Guide: How to Start Investing in Mutual Funds for Passive Income

Here is a complete and step-by-step guide for beginners on how to start investing in mutual funds with the aim of getting passive income :



Mutual funds are a vehicle used to collect funds from investors to then be invested in a portfolio of securities by an Investment Manager (MI).

A Complete Guide to Starting Mutual Fund Investments for Passive Income

Step 1: Understand the Concept and Determine Goals

  1. Understand What Mutual Funds Are:

    • Your funds are pooled with other investors' funds and managed by professional MIs.

    • MI invests these funds in various instruments (stocks, bonds, money markets, or a mixture of these).

    • Your profits come from the growth in investment value ( capital gain ) or periodic profit sharing (especially in Fixed Income/Money Market Mutual Funds, although the results are not guaranteed).

  2. Determine Passive Income Goals :

    • Determine the time period (short, medium, or long) and the target funds you want to achieve.

    • For more stable and more regular passive income , you should focus more on mutual funds with underlying assets that provide regular income, such as bonds or deposits.

Step 2: Know Your Risk Profile & Choose the Type of Mutual Fund

Each type of mutual fund has different risks and potential returns. Match your investment to your goals and risk profile:

Types of Mutual FundsMain AssetsIdeal TimeframeProfile RiskPotenti Passive Income
Money marketDeposits, Bonds < 1 yearShort-term ($\le$1 year)Conservative (Low)Low & Stable (from interest/deposits)
Fixed IncomeBonds/Debentures (min. 80%)Medium Term (1-3 years)ModerateMore Potential & Periodic (than bond coupons)
MixtureCombination of Stocks, Bonds, Money MarketMedium-Long TermModerate-AggressiveDepends on composition (combination of growth and income)
StocksStock (min. 80%)Long Term ($\ge$5 years)Aggressive (High)The main advantage of Capital Gain is that dividend distribution is uncertain.

For passive income goals that tend to be stable and regular, Fixed Income Mutual Funds are often the choice because their portfolios focus on bonds that have coupons (periodic returns).

Step 3: Choose the Right Investment Platform

  1. Choose a Trusted Mutual Fund Selling Agent (APERD):

    • Make sure the platform (investment app, bank, or direct Investment Manager) is registered and supervised by the Financial Services Authority (OJK) .

    • Compare fees (purchase/sales fees), ease of access, and the choice of mutual fund products available.

  2. Account Registration and Verification:

    • Register online (usually requiring an ID card and bank account). This process includes identity verification (KYC) and risk profiling.

Step 4: Start Investing and Monitor

  1. Make an Early Purchase:

    • Purchase the mutual fund product you have chosen (recommended Fixed Income or Money Market Mutual Funds for beginners with the goal of stable passive income ).

    • You can start with a small capital, some even start from IDR 10,000 or IDR 100,000.

  2. Consistent Investing (DCA - Dollar Cost Averaging ):

    • The Key to Passive Income: Allocate funds regularly (for example, monthly) to purchase mutual fund units. This consistency helps minimize the risk of price fluctuations and gradually grow your assets.

  3. Monitor Portfolio Regularly:

    • Check your investment performance in the app.

    • Don't panic if your investment value drops slightly. Remember, mutual funds (especially fixed-income funds) are designed for medium-term growth, not instant profits.

Tips for Success in Passive Income from Mutual Funds

  • Focus on Income : If your goal is passive income , focus on mutual funds that have the potential for regular profit sharing (i.e. Fixed Income ).

  • Reinvest the Earnings (Reinvestment): To accelerate the growth of your assets (the effect of compound interest), consider reinvesting (buying new mutual fund units) the earnings you earn.

  • Diversification: Don't just invest in one product. Spread your funds across several mutual funds from different investment managers or different types of mutual funds to reduce risk.

  • Discipline and Long-Term: Significant passive income from investing takes time. Stay disciplined in saving and focused on your long-term goals.

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