Fund Investment Guide: A Complete Tutorial from Basic Knowledge to Portfolio Allocation

What is a Fund? The First Step in Fund Education

What is a fund? (Securities Investment Fund) is a collective investment vehicle where banks or brokerages pool investors’ funds and entrust professional fund managers to handle unified management, with a fund custodian responsible for asset safekeeping. It is an indirect securities investment method that embodies the characteristics of profit sharing and risk sharing.

Depending on the investment target, funds are mainly divided into five types: money market funds, bond funds, equity funds, index funds, and hybrid funds. Each type has its own unique risk-return characteristics, allowing investors to choose flexibly based on their needs.

Fund Operation Process: How Does Capital Flow?

Fund operation involves three main participants: Investors (Fund Shareholders), Fund Managers (Fund Management Companies), and Banking Institutions (Fund Custodians).

The process is: Investors pool funds → Fund managers develop investment strategies → Fund custodians invest funds into money or capital markets → Returns are generated through market investments. This clear division of roles ensures the safety of funds and professional management.

Detailed Explanation of the Five Types of Funds: Must-Know for Fund Education

Money Market Funds
Primarily invest in short-term fixed-income products (government bonds, commercial paper, certificates of deposit), characterized by low risk and excellent liquidity. Suitable for conservative investors prioritizing asset liquidity and safety, but with relatively low long-term yields.

Bond Funds
Focus on fixed-income instruments such as government bonds, treasury bonds, and corporate bonds, aiming to earn interest from bonds. Among them, funds investing in government bonds have the lowest risk and best liquidity but require a longer investment period to achieve substantial returns.

Equity Funds
Mainly invest in common stocks and preferred stocks, representing higher risk but also offering higher return potential. Be cautious of systematic risk, unsystematic risk, and management operational risks.

Index Funds
Track specific indices (such as stock market indices, commodity indices). Fund managers buy all or some component stocks of the index to replicate its performance with minimal tracking error. ETFs are a common form of index funds, offering better liquidity.

Hybrid Funds
Invest in a mix of stocks, bonds, and other assets to balance risk and return. Risk levels are between bond funds and equity funds, suitable for conservative investors, with good diversification effects.

Comparison Table of the Five Major Types of Funds

Compared to financial products like stocks and futures, all fund types tend to have milder risks and returns. The biggest advantage of funds is their relatively low risk and low investment threshold (as low as 3000 yuan to start), making them very suitable for investors with limited capital.

How Do Funds Generate Profits? Breakdown of the Investment Process

Step 1: Clarify Capital Flow

Understanding how your funds are managed by professional teams is crucial. Fund managers develop strategies based on market analysis, custodial banks ensure fund safety, and investors only need to regularly check the net asset value changes.

Step 2: Choose Suitable Fund Types

With many fund options available, select based on your risk tolerance, investment horizon, and expected returns. For short-term capital preservation, consider money market funds; for medium-term appreciation, hybrid funds; for long-term growth, stock funds.

Step 3: Build an Investment Portfolio

The core wisdom in investing in funds is diversification—avoid concentrating all funds in a single fund or type. Set different proportions based on your risk preference:

Risk-tolerant Investors
Stocks 50% + Bonds 25% + Money Market 15% + Others 10%

Risk-neutral Investors
Stocks 35% + Bonds 40% + Money Market 20% + Others 5%

Risk-averse Investors
Stocks 20% + Bonds 20% + Money Market 60%

Step 4: Execute Purchase and Redemption

Submit purchase applications through banks, brokerages, or fund companies, fill in relevant information, and start investing. Later, you can redeem based on market changes and personal needs.

Overview of Fund Investment Costs and Fees

Four Common Fees

Purchase Fee
Charged when investors buy funds. About 1.5% for bond funds, around 3% for stock funds, with some channels offering discounts.

Redemption Fee (Trust Management Fee)
Most funds in Taiwan have no redemption fee, but funds purchased through banks may deduct a one-time trust management fee upon redemption (classified as “special money trust”).

Management Fee
Annual management fee charged by fund companies, usually between 1% and 2.5% per year. ETF management fees are relatively lower.

Custodian Fee
Fee charged by banks or custodians for fund safekeeping, approximately 0.2% annually.

Fund Investment Fee Rate Reference Table

Five Core Advantages of Fund Investment

Asset Diversification
Funds pool capital from many investors to invest across stocks, bonds, commodities, and other assets, providing broad investment opportunities and reducing risks associated with over-concentration in a single asset.

Risk Diversification Mechanism
Distributing funds across different asset classes significantly reduces the risk of losses from any single investment.

Professional Management Team
Fund managers possess deep market knowledge and research capabilities, enabling smarter decision-making and pursuit of optimal returns.

Liquidity and Flexibility
Most funds can be bought and sold flexibly, offering high liquidity. Investors can quickly convert funds into cash when needed.

Low Entry Barrier and Small Investment Amounts
Many funds allow small investments, with low minimum thresholds, enabling ordinary investors to participate in professional asset allocation.

Summary of Fund Education

As a financial management tool, funds are an ideal choice for investors with limited time, lacking investment research experience but with financial planning needs. By understanding different fund types, rationally allocating investment portfolios, and controlling costs, investors can establish a stable long-term wealth growth plan. Beginners are advised to start with risk-averse or risk-neutral allocations, gradually adjusting proportions as experience accumulates to find their suitable investment rhythm.