A Beginner’s Guide for Mutual Fund Investors │ WeLab Bank

As inflation continues to rise and the purchasing power of paper currency decreases, the general public is seeking ways to fight inflation, and investing in funds is a popular option. Want to try investing in funds but don't know where to start? This article is just right for you. Let's explore the types of funds, how fund investment works, and what to pay attention to. WeLab Bank will guide you through it all!What is a mutual fund?Mutual funds is a type of investment tool that pools the funds from many investors. The funds are managed and operated by a team of professional managers with an aim to increase wealth. Fund managers typically diversify funds by investing into different assets or projects, such as stocks, bonds, money market instruments, and other assets. Through subscribing into funds, investors can use a lower amount of funds to invest into ideal portfolios, thus achieving their investment goals.What are the different types of funds?Funds can be classified in various types, depending on the way they raise funds or by being classified as private equity funds. Private equity funds are only sold to a small number of investors, with a high investment threshold, making it difficult for most investors to participate. The most common funds in the market are mutual funds and unit trusts, which have slight differences in their establishment, the number of shares that can be issued, and regulatory requirements. Funds can also be further classified based on the investment target, management method, and investment region.Classification by investment target:
  • Money market funds: invest in various money markets, mainly short-term investments, with high liquidity and relatively low risk.
  • Bond funds: invest in different types of bonds, stable income, and low to medium risk.
  • Equity funds: invest in various types of stock assets, which is equivalent to investing in multiple stocks at the same time, with higher potential returns and risks.
  • Mixed funds: diversify investments in different assets such as stocks and bonds, with risks depending on the stock-bond ratio.
Classification by management method:
  • Active management: the fund manager determines the investment target, investment strategy, and market entry and exit time to achieve a performance goal that surpasses the market index.
  • Passive management: the investment objective tracks the performance of a specific market index, and the objective "rises and falls together" with the overall market trend, with less impact from individual stock fluctuations.
Classification by investment region:
  • Global Funds: Lower risk, widest investment scope, relatively conservative.
  • Regional Funds: Moderate risk, suitable for investors with preferences for specific regions, such as Europe, America, Southeast Asia.
  • Single-Country Funds: Higher risk, suitable for those who have high confidence in the assets of a single country.
The above are common classification methods for fund investments. Funds can also be further categorized based on industry sectors, issuers, issuance methods, etc. If you are interested, you can further explore these categories in detail.Who is suitable for mutual fund investment?For investment beginners or people who do not have time to analyze the stock market, mutual fund investment can be a good choice. Compared to buying individual stocks, mutual funds generally invest in different industries and regions, and hold at least dozens of stocks or other securities, so you can also benefit from the professional management from fund managers. Therefore, mutual fund investment can generally achieve the function of risk diversification. On the other hand, mutual fund investment is also suitable for long-term investors, since funds generally have stable growth over the years, achieving long-term value appreciation for your assets.How do mutual funds operate?After investors purchase mutual funds through fund platforms, banks, securities firms, etc., the fund manager will typically consolidate the funds and then diversify the investments. When the fund receives dividends (or coupons) from the investment portfolio, the fund company may distribute a certain percentage of such income to investors. On the other hand, investors can also choose to redeem the fund to realize gains from price differences.What should you pay attention to when investing in funds?Although fund investment is generally considered one of the safer investment methods, it still involves risks, and there are certain things to be aware of and understand before making an investment decision, such as:
  • Derivative costs: Fund investment may involve transaction fees, management fees, redemption fees, and other costs, which directly affect the rate of return. Therefore, pay close attention to the relevant fee structure and evaluate the costs before making a decision.
  • Choosing fund companies and managers: The performance of fund investment largely depends on the professionalism and management ability of the fund companies and managers. Therefore, investors need to pay attention to the reputation of the fund companies and managers, as well as their investment strategies. Investors can also refer to their previous investment performance and size of assets under management.
  • Assessing risk tolerance: Risk and return are often interrelated. Therefore, before investing in funds, investors should consider the nature of the funds, evaluate the risks, and combine it with their own circumstances to independently assess and choose funds that are suitable for themselves.
After reading this, do you have a better understanding of fund investment? Click on the WeLab Bank website to learn more about personalized fund investment portfolios that suit your preferences: https://bit.ly/3NST2g1If you want to get more investment inspiration and insights and stay in the know of the latest market trends, you can subscribe our YouTube channel and watch our WeLab Bank Wealth Insight video series: http://bit.ly/3AW4K1qImportance NoticeThis document is for general information only. The information or opinion herein is not to be construed as professional investment advice or any offer, solicitation, recommendation, comment or any guarantee to the purchase or sale of any investment products or services. This document is for general evaluation only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons.The information or opinion presented has been taken from sources (including but not limited to information providers and fund houses) believed to be reliable by WeLab Bank, but WeLab Bank makes no warranties or representation as to the accuracy, correctness, reliabilities or otherwise with respect to such information or opinion, and assume no responsibility for any omissions or errors in the content of this document. WeLab Bank does not take responsibility for nor does WeLab Bank endorse the information or opinion provided by any information provider or fund house.Past performance is not indicative of future results. WeLab Bank makes no representation or warranty regarding future performance. Any forecast contained herein as to likely future movements in interest rates, foreign exchange rates or market prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in interest rates, foreign exchange rates or market prices or actual future events or occurrences (as the case may be).You should not make any investment decision purely based on this document. Before making any investment decisions, you should consider your own financial situation, investment objectives and experiences, risk acceptance and ability to understand the nature and risks of the relevant product(s). WeLab Bank accepts no liability for any direct, special, indirect, consequential, incidental damages or other loss or damages of any kind arising from any use of or reliance on the information or opinion herein. You should seek advice from independent financial adviser if needed.WeLab Bank is an authorised institution under Part IV of the Banking Ordinance and a registered institution under the Securities and Futures Ordinance (CE Number: BOJ558) to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.This document is issued by WeLab Bank. The contents of this document have not been reviewed by the Securities and Futures Commission in Hong Kong.