Investment Fund Beginner's Guide: Master the Art of Financial Management from Scratch

For busy professionals or those who have little interest in financial analysis but need to manage their finances, investing in funds is a relatively easy path. This article will guide you to a deeper understanding of what investment funds are, how their income mechanisms work, and how to scientifically allocate your personal asset portfolio.

First, understanding funds: a smart way to manage finances

What are investment funds? Simply put, a fund refers to a securities investment fund, issued by banks or brokerages, which pools investors’ capital and entrusts professional fund managers to handle investments, with fund custodians overseeing the funds. This is an indirect securities investment method, where investors participate in market investments by purchasing fund shares, sharing profits, and bearing risks collectively.

Depending on the investment targets, funds can be divided into five main types: money market funds, bond funds, index funds, hybrid funds, and equity funds.

How funds generate income: four key steps

First step: tracking the flow of funds

How do investment funds operate? The core lies in the collaboration of three types of participants—investors (fund shareholders), fund managers (fund management companies), and banking institutions (fund custodians). The flow of funds is: investors’ capital is first pooled together, then the fund manager makes investment decisions based on the investment strategy, and subsequently, the fund custodian invests these funds into money market or capital market financial products.

Second step: choosing the right fund type

Faced with a dazzling array of fund categories, choosing the right one becomes crucial.

Money Market Funds — Invest in short-term fixed income products such as government bonds, commercial paper, and certificates of deposit. They are low-risk assets with excellent liquidity. The downside is that long-term yields are relatively low, making them most suitable for conservative investors who prioritize liquidity and safety.

Bond Funds — Mainly allocate to fixed income instruments like government bonds, treasury bonds, and corporate bonds, earning returns through bond interest income. Bond funds investing in government bonds carry the least risk and have better liquidity, but require a longer investment cycle to see substantial returns.

Equity Funds — Focus on stocks as the core investment target, including preferred and common stocks. They are higher-risk products but can also deliver higher returns. Attention should be paid to systematic risk, unsystematic risk, and management operation risks.

Index Funds — Track a specific index, with fund managers purchasing all or some of the component stocks of that index, keeping the investment portfolio aligned with the index trend. They have good liquidity, with ETF funds being a representative example.

Hybrid Funds — Allocate across stocks, bonds, and other assets to balance risk and return. Their risk level is between bond funds and equity funds, suitable for investors seeking balanced allocation.

Compared to products like stocks and futures, investment funds tend to have more moderate risks and returns. Their greatest advantage is lower risk and investment barriers—usually starting with just 3000 yuan. Funds are suitable for long-term investors, with generally longer investment cycles, and most funds do not involve leverage.

Third step: constructing an investment portfolio

What are investment funds? More importantly, how to optimize risk through portfolio allocation. Don’t put all your eggs in one basket—that’s the golden rule of investing. Based on your financial situation and risk tolerance, reasonably arrange the proportion of short-term, long-term, high-yield, and low-yield products:

Aggressive Investors: 50% stocks funds, 25% bond funds, 15% money market funds, 10% others

Balanced Investors: 35% stocks funds, 40% bond funds, 20% money market funds, 5% others

Conservative Investors: 20% stocks funds, 20% bond funds, 60% money market funds

Fourth step: initiating the purchase process

After selecting your investment portfolio, you can purchase funds through securities firms or banks. The general process is: log into the investment platform or visit the branch → check fund information → confirm the purchase plan → complete the transaction confirmation.

Cost structure analysis of investing in funds

From subscription to redemption, investing in funds involves various fees, with the four most common being subscription fees, redemption fees, management fees, and custody fees.

Subscription Fees: Most funds charge a certain percentage at the time of purchase—about 1.5% for bond funds, around 3% for stock funds, with some channels offering discounts.

Redemption Fees (Trust Management Fees): Most funds in Taiwan do not charge redemption fees, but investors purchasing through banks may face trust management fees, which are part of “specific monetary trusts,” usually deducted from the net asset value. Direct sales by fund companies typically do not have this fee.

Management Fees: Charged by the fund company as compensation for managing assets. Usually between 1% and 2.5%, with different rates for different fund types. Index funds (like ETFs) tend to have lower management fees.

Custody Fees: Charged by banks or third-party institutions, since all investor funds are held by banks. Typically around 0.2% annually.

Why investment in funds is worth choosing

What are investment funds? A wise financial management choice, for the following reasons:

Asset Allocation Diversification: Funds pool the capital of many investors to invest in stocks, bonds, commodities, and other assets, providing broad investment opportunities and reducing risks associated with single assets.

Risk Diversification Mechanism: Distributing funds across multiple asset classes significantly reduces the risks associated with any single investment.

Professional Management Team: Managed by experienced fund managers with deep market knowledge and research capabilities, making smarter investment decisions.

High Liquidity Features: Funds can usually be bought and sold at any time, providing sufficient liquidity and quick cashing-in when needed.

Low Investment Threshold: Most funds allow small investments, making them accessible for small investors.

For investors seeking higher returns with small capital, Contracts for Difference (CFD) are another option—these are popular short-term trading tools in recent years, allowing small investments to potentially generate large gains, suitable for short-term capital use. Compared to funds, CFDs offer higher return opportunities but also carry greater risks. In short, what are investment funds? They are the perfect tool tailored for busy, conservative individuals with financial needs.