Beginner's Must-Read | Complete Guide to Fund Investment: Learn to Build a Fund Portfolio from Scratch

As a working professional or beginner investor, are you troubled by fund management? This article will explain the core knowledge of mutual fund investing in a simple and straightforward manner to help you quickly master fund allocation skills.

What is a mutual fund? Why choose a mutual fund?

The essence of a mutual fund is a pooled investment vehicle. In simple terms, fund companies aggregate funds from many investors, entrust professional fund managers to manage and invest collectively, and the funds are held in custody by a third-party institution. This model allows ordinary people to participate in professional-level investing and exemplifies a “profit sharing, risk sharing” investment approach.

Depending on the investment target, mutual funds are mainly divided into five types: money market funds, bond funds, stock funds, index funds, and hybrid funds.

Key advantages of choosing mutual fund investments include:

Diversified Asset Allocation — Funds distribute investments across stocks, bonds, commodities, and other asset classes, automatically helping you achieve asset diversification and reduce risks associated with single investments.

Risk Diversification Mechanism — Don’t put all your eggs in one basket. By holding dozens or even hundreds of investment targets, funds effectively diversify the volatility risk of specific assets.

Professional Management Team — Your money is managed by experienced fund managers with extensive market knowledge. Their professional decision-making surpasses that of ordinary investors, making it easier to seize market opportunities.

High Liquidity — Funds can be bought and sold at any time, allowing quick realization of funds when needed without waiting.

Low Entry Threshold — Most funds have low minimum investment amounts, often just a few thousand yuan, enabling small investors to participate.

Fund operation mechanism and fee structure

The three main participants in fund operation

Fund operation involves three core roles: Investors (you), responsible for funding; Fund Management Companies, which formulate investment strategies; and Custodian Institutions (usually banks), responsible for safeguarding the funds. The flow of investor funds is: individual funds → collective management by the fund company → investment into the market by the custodian.

Common fees for mutual fund investments

From purchase to redemption, you need to understand the following fee structure:

Purchase Fee — Charged when buying funds, typically 1.5% for bond funds and 3% for stock funds. Different channels may offer discounts.

Redemption Fee — Charged when selling funds, generally around 0.2% per year. Note that funds purchased through banks may involve trust management fees, which are deducted from the fund’s net value upon redemption.

Management Fee — Charged annually by the fund company, usually between 1% and 2.5%, to cover fund manager salaries and operational costs. Index funds tend to have lower management fees due to lower management complexity.

Custodian Fee — Charged annually by banks for safekeeping fund assets, generally around 0.2% per year. This is a cost-sharing between the fund company and the bank.

All these fees are automatically deducted from the fund’s net asset value, and investors do not need to pay extra.

Detailed comparison of the five major fund types and their risk-return profiles

Money Market Funds — The safest choice

Invest in short-term fixed income products such as bonds, commercial paper, and certificates of deposit. Very low risk, highly liquid. Suitable for investors prioritizing capital safety and liquidity. The downside is relatively lower long-term yields.

Bond Funds — Steady growth tool

Mainly allocate to government bonds, treasury bonds, corporate bonds, and earn income from bond interest. Moderate to low risk, stable returns. Longer investment periods yield more apparent gains.

Stock Funds — High risk, high return

Invest primarily in stocks, aiming for long-term capital appreciation. Although short-term volatility is high, the potential for long-term gains is greatest. Suitable for investors who can tolerate price fluctuations.

Index Funds — Passive market tracking

Purchase all or some constituent stocks of an index, aiming to replicate the index’s returns. ETFs are typical representatives, characterized by low costs, high transparency, and good liquidity.

Hybrid Funds — Balanced risk and return

Allocate across stocks, bonds, and other assets, with risk and return between bond funds and stock funds. Suitable for investors with moderate risk appetite.

Quick comparison of fund types:

Compared to products like stocks and futures, mutual funds have more controllable risks and lower investment thresholds, often starting at just 3000 yuan. This is the biggest attraction of mutual funds.

How to buy mutual funds? Where to buy?

Purchase channels include:

• Bank channels — Various commercial banks offer mutual fund sales services, with easy account opening
• Fund company official websites — Purchase directly from fund companies, possibly with lower fees
• Third-party fund platforms — Professional sales platforms with a wide range of products
• Securities firms — Securities accounts can also purchase various fund products

Typical mutual fund purchase process:

Step 1 — Choose a channel and open an account
Step 2 — Complete identity verification
Step 3 — Deposit funds into the account
Step 4 — Select funds and confirm purchase
Step 5 — Wait for transaction confirmation

The entire process can usually be completed online, making it very convenient.

How to scientifically allocate a mutual fund portfolio to diversify risk?

The core of mutual fund investing is to build a reasonable asset allocation portfolio based on your risk tolerance and investment horizon.

Before allocation, ask yourself three questions:

1. How much investment fluctuation can I tolerate?
2. How long do I plan to invest?
3. Is my goal steady income or long-term appreciation?

Based on your risk preference, here are three classic allocation schemes for reference:

Conservative allocation (suitable for risk-averse investors)

• 40% bond funds, 50% money market funds, 10% stock funds
• Features: Stable returns, low volatility, high principal safety

Balanced allocation (suitable for moderate risk-takers)

• 35% stock funds, 40% bond funds, 25% money market funds
• Features: Relatively balanced risk and return, suitable for most investors

Aggressive allocation (suitable for risk lovers)

• 50% stock funds, 25% bond funds, 15% money market funds, 10% other investments
• Features: Pursuit of high returns, capable of handling significant fluctuations

Allocation tips and investment points

Diversify investment timing — Avoid investing all funds at once; adopt a regular fixed amount approach (e.g., monthly contributions) to smooth out market fluctuations.

Regular review and adjustment — Check your portfolio quarterly or semi-annually, and adjust asset allocation based on market changes and personal circumstances.

Long-term holding mindset — The appeal of mutual funds lies in compound interest; the longer the holding period, the more evident the gains. Frequent short-term trading can erode returns through fees.

Choose suitable funds — Review historical performance, fund manager background, fee ratios, and other key indicators. Avoid blindly following trends.

Risk awareness — Even relatively safe funds are not risk-free. Markets fluctuate, so be psychologically prepared.

Mutual fund investing is a long-term path to wealth accumulation. By scientifically allocating your fund portfolio, you can manage risks while achieving steady growth. Start today by selecting a suitable mutual fund allocation plan and let professional teams safeguard your wealth.