How Beginners Buy Funds: Start Your First Fund Investment

When we want to try investing, the goal is to expect capital income other than our daily salary. But in fact, investing is not so simple as buying and selling, except that you need to choose investment categories and investment criteria, but also buy and sell them at the right time. It takes a wealth of expertise and a wealth of trading experience to grow into a mature investor.

For beginners who lack investment experience and do not have much daily effort to learn investment methods and get market information, how to start a first investment with relatively low cost and low risk? Maybe try handing the money over to a trusted professional investment institution to handle it, such as a fund investment.

What is a Fund?

The Fund is a popular investment vehicle, issued and managed by qualified professional investment institutions. After investors buy a fund, the fund manager allocates the funds based on the fund's investment strategy to different assets, including: stocks, bonds, commodities, derivatives, etc. Therefore, an investor buying a fund is equivalent to buying a basket of assets behind the fund.

What are the advantages of fund investing? What do you need to pay attention to?

Advantages of Fund Investing

1. Low Entry Level: Buying a fund does not involve a stock exchange rate. For example, Futu has a low entry threshold of HK$0.01/USD. For example, investors can hold a set of assets through the fund and enter the market lower.

2. DIVERSIFIED RISK: INVESTING IN A SINGLE STOCK IS MORE SUSCEPTIBLE TO ECONOMIC, MARKET AND OTHER FACTORS. As a result, fund managers typically allocate funds across multiple assets, and even some funds create cross-regional, cross-asset class portfolios to reduce investment risk.

3. Save time: Buying a fund, which is equivalent to handing over funds managed by a fund company, without having to choose your own shares, and without frequent monitoring and trading operations, is a relatively stable potential return.

considerations

1. Fund Fees: Fund investment requires payment of management fees, application and redemption fees to fund companies, fund sales platforms; management fees are automatically deducted daily from the fund's net worth

2. Potential income is not limited to investing in individual stocks: Compared to investing in partial stocks and derivatives, the potential return on most similar fund investments is relatively small, but the risk of loss is also relatively low

3. INVESTORS ARE MORE PASSIVE: FUNDS ARE MANAGED BY FUND MANAGERS, INVESTORS CANNOT ADJUST THE ALLOCATION IN THE FUND PORTFOLIO ON THEIR OWN, AND PROACTIVE CONTROL IS LIMITED

What are the types of funds? What are the characteristics of each?

1. According to the type of assets invested in the fund

• Currency Funds: These funds mainly invest in short-term currency market instruments such as treasury bills, bank deposits, and commercial notes. They are generally considered to be low-risk investments that offer stable but low returns and are suitable for investors who need high liquidity.

• Bond Fund: Mainly invest in various types of bonds, such as government bonds, corporate bonds and municipal bonds. Bond fund income is derived from interest income, risk and return between currency funds and equity funds.

• Equity Fund: Invests mainly in the stock market with the aim of obtaining income through capital appreciation. Equity funds have higher risk, but also higher potential returns, and are suitable for investors with higher risk tolerance.

• Hybrid Funds: Hybrid funds invest in stocks, bonds, and other asset classes to diversify assets by balancing risk and return. This type of fund is suitable for investors looking for stable growth and stable returns.

2. According to the Fund Redemption Method

• Open Funds: These funds allow investors to apply for and redeem fund units at any time. The size of the fund may vary with the application and redemption of the investor.

• Closed-end Funds: Closed funds no longer accept new investments after they have raised funds, and investors generally cannot redeem the fund units at any time. Units of these funds are often traded on stock exchanges.

3. According to how the fund is bought and sold

• Intraday Trading Fund: Mainly exchange-traded funds (ETFs). ETFs are listed on stock exchanges and investors can buy and sell during trading hours, just like stocks. ETFs typically have high liquidity and transparency.

• Off-market funds: These funds are not listed on exchanges and investors need to buy and sell through a fund company or financial institution. Offshore funds are generally less liquid.

4. According to the method of fund raising

• Public Equity Fund: These funds are publicly issued to public investors, subject to strict regulatory and disclosure requirements, and are suitable for ordinary investors.

• Private Equity Fund: Private equity funds typically raise funds privately from professional investors or institutional investors, with relatively little regulation and flexible investment strategies.

5. Other categories

• HEDGE FUNDS: Adopt diversified and complex investment strategies to hedge market risks, usually only available to professional investors.

• Dividend Fund: Focuses on investing in stocks or bonds that offer stable dividends, suitable for investors who need a regular income.

• Trust Fund: A fund set up in the form of a trust, managed by a trust company, and the proceeds are distributed to the beneficiaries, usually involving longer-term investment objectives.

Fund Investment Step 1: Determine your investment objectives and risk preferences

Investment Objectives

• Short-term goals: For buying property, travel, or education funds, people tend to choose funds with higher liquidity and lower risk, such as currency funds or short-term bond funds.

• MEDIUM-TERM GOALS: FOR EXAMPLE, RETIREMENT SAVINGS OR ASSET VALUATION, PEOPLE WOULD CHOOSE EQUITY FUNDS OR HYBRID FUNDS WITH HIGHER RISK BUT POTENTIALLY GREATER RETURNS.

Risk Preference

• CONSERVATIVE INVESTORS: PREFER CAPITAL BUFFERS WITH LOWER RISK TOLERANCE AND ARE SUITABLE FOR INVESTMENT IN BOND FUNDS OR CURRENCY FUNDS.

• Robust investors: Able to take certain risks and seek stable growth and consider hybrid funds.

• Advanced investors: They can take on higher risks and aim for higher capital gains, and equity funds or industry/regional-focused funds may be suitable.

Fund Investment Step 2: Choose Funds Based on Investment Objectives and Risk Preferences

When choosing a fund, you need to pay attention to factors such as fund performance and fees, fund companies and fund managers, professional ratings to assist in the judgment.

Fund past performance, fees

For example, using Futubull, click on the Fund page to see the fund's historical performance, fees, and various valuation indicators.

Historical Rate of Return

You can understand how funds perform in different market environments based on historical return rates (e.g. 1-year, 3-year, 5-year, and 10-year); and you can compare the fund's rate of return with an index such as the Hang Seng Index or the average return of a similar fund to assess a fund manager's ability to choose stocks.

fees

The fund's management fees will directly affect your final return on investment, which requires a key comparison of this fee if you want to hold it over the long term. Prioritize funds with lower management fees when the rate of return is close to the same type of fund. You can also refer to the Expense Ratio to measure the fund's operating costs.

Common Fund Valuation Metrics

• Asset Size: Larger funds may have better asset allocation capabilities, but too large a size may limit the fund's flexibility.

• Liquidity: Evaluates the liquidity of the fund to ensure that it is convenient to trade and trade when needed.

• Sharpe Ratio: Measures the excess return obtained per unit of risk (volatility). The higher the Sharpe ratio indicates the better the return of the fund after risk adjustment.

• Treynor Ratio: Similar to the Sharp ratio, but measures the performance of a fund based on systematic risk (Beta).

• Information Ratio: Measures the ratio of the excess return of a fund that exceeds the benchmark index and the tracking error. A higher information ratio indicates that fund managers have better choices.

• Standard spread: Measures the volatility of fund returns. The higher the standard spread means that the more volatility of the fund and the higher the risk.

• Alpha value: Measures the excess return capacity of a fund manager. A value of alpha greater than 1 indicates that the fund has outperformed the benchmark index, and the fund manager is excellent at choosing stocks; less than 1 is the opposite.

• Beta value: Measures the market risk of the fund relative to the benchmark index. A Beta value greater than 1 indicates that the volatility of the fund is greater than the market, while a Beta value of less than 1 is the opposite.

• Max Drawdown: Measures a fund's maximum loss from peak to trough over a given period of time, which helps to understand the fund's risk during market falls.

Don't read the fund recruitment book? It's enough to look at these indicators

Fund Companies and Fund Managers

Since the fund is issued by the fund company and managed by the fund manager, the size and reputation of the issuer, as well as the experience and management style of the manager, can affect the performance of the fund. Novice investors can prioritize funds issued by larger, more well-known fund companies and managed by experienced managers.

Choose only the right direction, look at fund companies and managers

Reference Professional Rating

The fund's risk rating is assessed by professional bodies such as Morningstar. Simply put, the higher the rated fund, the safer and more stable it is for investors with lower risk preferences.

Risk rating removal can be found outside the third party website, and in the Futubull app, it is easy to see the risk rating of each fund.

Can a few stars earn steadily? How to open the fund rating correctly

Fund Investment Step 3: Determine the Investment Plan

When buying a fund, you should make your own investment plan, for example: is it a one-time investment or a regular investment fund (monthly fund)? How often to invest? How much per investment?

One-time investment

The advantage of a one-time investment is that you can invest all your funds at once in favorable market conditions, and if you manage to catch market trends, you can get relatively higher returns. On the other hand, a single transaction only requires a one-time transaction fee, and the overall operation is easier.

But the disadvantage is that if you look at the wrong time and fall after buying, you will have to suffer greater losses and psychological stress. Investing all of your funds in the short term will also leave you in a passive position, unable to make future deployments flexibly.

Regular Investment (Monthly Fund)

The benefit of a monthly fund is that it is possible to gradually accumulate the invested capital by investing funds in batches. Buying when the market is falling can also gradually reduce the cost of holding positions, smoothing the risks of market volatility.

However, if the market is on a continuous unilateral upswing, the cost of holding positions and potential returns will be lower than a one-time investment. In addition, the transaction fees for monthly funds will be relatively higher.

Precautions for Fund Investing

Choosing a suitable fund investment platform

Many banks and brokers support fund trading, but they offer different services and fees. For a better investment experience, you should prioritize when choosing a platform: offering more premium fund products, more secure, clear and reasonable fees, high quality of service, powerful features and ease of operation.

For example, choose Futui Osimi Wealth.

Futu Daishi Financial, a private equity fund company, established a partnership with 91 financial institutions around the world. SEE 6P PRINCIPLES, PERFORMANCE, INVESTMENT PHILOSOPHY, INVESTMENT MIX, MANAGEMENT TEAM, MANAGEMENT COMPANY AND INVESTMENT FLOW FOR A COMPREHENSIVE ANALYSIS OF FUNDS. A comprehensive assessment of the products that reach the top of the line can become the foundation of the platform.

At Futu, you can set aside $730* for every $10 000 fund. You can apply now to open a Futu Universal Fund Account, 0 trading platform fee, 0.01 is now available. Click on the below image to learn more

* Fund-related fee statistics are based on the average of banking and brokerage platforms providing fund services on the market as of March 31, 2023. The data are not fully statistical and are for reference only.

Read the fund manual carefully before buying

It is recommended that you read the fund manual carefully before buying a fund to verify that the fund's investment objectives and strategy meet your investment objectives and risk tolerance, understand the main risks the fund faces, and the specific fee structure of the fund.

Don't read the fund recruitment book? It's enough to look at these indicators

Regularly review the performance of the fund

Regularly reviewing fund performance is an important part of ensuring that the portfolio is aligned with personal financial objectives.

Investors should establish a habit of reviewing fund performance quarterly or semi-annually and keeping a close eye on changes in the market and economic environment. By comparing a fund's performance against its benchmarks and similar funds, you can assess a fund manager's ability to manage and consider increasing or decreasing investments in a particular fund based on how you view results and your financial situation.

In addition, continuous learning of market knowledge and investment skills will help improve your investment decision-making skills and help you manage your fund investments more effectively to achieve long-term financial goals.