The essential course for mastering personal finance: In-depth understanding of fund allocation and value-added mechanisms

For busy professionals who lack the time to delve into market analysis, systematic fund investing often provides a relatively stable path to wealth management. This article will comprehensively analyze the core concepts of funds, profit principles, fee structures, and how to reasonably allocate based on individual circumstances.

What Are Funds? A Detailed Explanation of the Operating Mechanism

What is the concept of a fund? In simple terms, a fund refers to a securities investment fund—a collective investment vehicle. Banks or brokerages issue fund shares, pooling capital from multiple investors, which is then managed by professional fund managers who make strategic investments, with the fund custodian responsible for safeguarding the funds.

This is a typical form of indirect securities investment that shares profits and risks. Compared to direct investment in stocks or bonds, funds are characterized by relatively lower risk and more accessible investment thresholds—generally around 3,000 yuan to participate.

Fund Operation Participant Structure

Fund operation involves three main participants:

• Investors: Holders of fund shares, the source of capital
• Fund Managers: Responsible for formulating investment strategies and asset allocation
• Banks and Custodian Institutions: Responsible for safekeeping and oversight of funds

Investors’ capital is first pooled together. Based on this, fund managers develop investment plans, and finally, the custodian channels the funds into money market or capital market financial products.

How Do Funds Make Money? A Comparison of Five Main Types

The type of financial product a fund is depends largely on its investment target. Based on different investment directions, funds are mainly divided into five categories:

Money Market Funds — Invest in short-term fixed-income products (government bonds, commercial paper, certificates of deposit, etc.), classified as low-risk. Features include high liquidity and safety, but long-term yields are usually lower, suitable for risk-averse investors and those seeking liquidity.

Bond Funds — Mainly invest in government bonds, treasury bonds, corporate bonds, and other fixed-income instruments. Risk is between money market funds and stock funds, with bond funds investing in government bonds being relatively less risky. Note that achieving substantial returns typically requires a longer investment cycle.

Stock Funds — Invest primarily in stocks (common stocks, preferred stocks, etc.). They are high-risk, high-return types with long-term appreciation potential, but also face systematic risk, unsystematic risk, and management risk.

Index Funds — Aim to replicate a specific index (such as stock indices, commodity indices, etc.) by purchasing all or part of the index’s constituent stocks, striving to track the target index. They have good liquidity, with ETFs being a typical example. Features include passive management and lower costs, but they are affected by index fluctuations and tracking errors.

Hybrid Funds — Invest in a mix of stocks, bonds, and other assets to achieve a dynamic balance of risk and return. Moderate risk level, returns between bond funds and stock funds, suitable for conservative investors seeking balance.

Personal Portfolio Allocation Strategies

After understanding what each type of fund is, the more critical aspect is how to allocate reasonably based on your own risk tolerance. As the saying goes, “Don’t put all your eggs in one basket,” and the same principle applies to fund investment—diversifying across multiple fund types can significantly reduce overall investment risk.

First, thoroughly assess your financial situation and risk preferences, then balance short-term and long-term products, high- and low-yield combinations to optimize risk and return.

Risk-Based Allocation Reference Plans

Aggressive Investors (High risk tolerance)

• Stock Funds: 50%
• Bond Funds: 25%
• Money Market Funds: 15%
• Other Investments: 10%

Balanced Investors (Moderate risk tolerance)

• Stock Funds: 35%
• Bond Funds: 40%
• Money Market Funds: 20%
• Other Investments: 5%

Conservative Investors (Low risk tolerance)

• Stock Funds: 20%
• Bond Funds: 20%
• Money Market Funds: 60%

Hidden Costs of Fund Investment: A Full Fee Landscape

Investing in funds is not cost-free. From subscription to redemption, investors incur various fees. Understanding these costs is crucial for evaluating net returns.

Subscription Fees — When purchasing fund shares, fund companies charge a certain percentage of the subscription amount. Bond funds typically charge around 1.5%, stock funds about 3%. Different sales channels may offer discounts.

Redemption Fees (Trust Management Fees) — In Taiwan, most funds do not charge redemption fees, but some channels differ. If purchased through banks, investors face trust management fees (a “special money trust” feature), deducted from the net asset value upon redemption, approximately 0.2% per year.

Management Fees — Charged by fund companies for managing assets, usually between 1% and 2.5% annually. Index funds (like ETFs) tend to have lower management fees.

Custodian Fees — Charged by banks or custodian institutions, about 0.2% per year. Since investor funds are held by third-party custodians rather than directly by the fund company, this fee is a necessary expense.

Core Advantages of Fund Investment

What makes funds a top choice for mass wealth management? Mainly the following advantages:

Asset Diversification — Funds distribute investors’ capital across stocks, bonds, commodities, and other asset classes, providing a broader investment scope than individual investors can achieve, effectively reducing over-concentration risks.

Risk Diversification Effect — Through diversified portfolios, the impact of a single investment failure is significantly weakened, enhancing overall risk tolerance.

Professional Management Team — Managed by experienced professionals with deep market knowledge and research capabilities, whose decision-making and information advantages far surpass those of ordinary investors.

Flexible Capital Withdrawal — Funds are highly liquid, allowing investors to buy or sell at any time, enabling quick cash realization when needed.

Low Entry Barriers — Most funds allow small investments, with low minimum amounts, making it easy for ordinary working people to participate.

For long-term investors seeking stable appreciation, funds are indeed an effective asset allocation tool. Their relatively lower risk, professional management, and accessible investment thresholds make them an ideal choice for ordinary investors’ wealth management.