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Understanding mutual funds

Introduction to Mutual Funds

What are "Mutual Funds"?

Mutual funds refer to the funds entrusted by non-specific investors to professional managers for investing management. The financial products which mutual funds invest in include stocks, bonds, futures, gold, precious metals, options, and warrant certificates, which are all treated as potential investment. Based on the proportion of funds contributed, investors are not only entitled to share the investment profits, but also take on a corresponding amount of investment risks.

The Beginner's Guide↓


How mutual funds operate

Mutual funds adopt an operational model where management and safekeeping activities are kept separate, ensuring that assets are secure and professionally managed. Currently, most mutual funds can be conducted transactions via non-discretionary monetary trusts at a bank. Pursuant to the Trust Law, trust assets are not considered as part of the bank's assets are financially independent. Thus, regardless if the bank, fund company or custodian organization suffers from a management issue, investor funds still remain safe. They are operated in the following model:

Institution Role
Sales Agent Collects funds from investors, distributes profits to investors.
Fund Company Responsible for managing and operating the fund, and issuing buy and sell orders to securities dealers. They do not personally handle these funds.
Custodian Organization Safeguards investor funds in a dedicated account, and settles these assets following instructions from the fund company.

What are the categories of mutual funds?

Advantages of Investing in Mutual Funds

Advantage Description
Low Investment Threshold Wide variety of different investment choices. You may participate in the market and make investments through small amounts, staying on top of the growth opportunities in different markets.
Risk Diversification Avoid putting all your eggs in one basket by diversifying your investments through portfolios to mitigate investment risks.
High Liquidity Open-end funds generally allow you to obtain your funds approximately 2 to 10 days after redemption.
(However, based on the actual situation, redemption times may be subject to the fund company's individual policies and market conditions.)
Professionally Managed Utilizing professional fund managers and research teams, funds are able to greatly improve investment returns through more complete macroeconomic analysis and better selecting investment targets.

Risks and Profits of Investing in Mutual Funds


Market Risk Market risk is the main risk of mutual funds. The net value of a fund can be impacted if the region or market where its investments are based in experience fluctuations or crashes.
Exchange Rate Risk When investing into offshore fund denominated in a foreign currency, or when an onshore fund invests into a foreign market, differences between the type of currency held by the investor and the denominated currency of fund may lead to exchange rate risk.
Interest Rate Risk Refers to losses caused by a large rise or fall in interest rates. Funds investing mainly in bonds are the most affected by this type of risk.
Credit Risk When one of the fund's investment default, expected earnings and dividends are affected.

Investing involves gains and losses, and there are always risks. However, what are the sources of income for investing in mutual funds?

  • Capital Gains: Profits earned from the price difference by buying low and selling high various financial instruments invested in.
  • Interest Income: Earnings derived from stocks, bonds, or time deposits invested through mutual funds, in the form of dividends, distributions, or interest.
  • Exchange Rate Spreads: Exchange rate fluctuations can affect a fund's earnings when the fund invests into a foreign market, as investment in that market are denominated in a different currency compared to the fund.

Fees for investing in a fund

Fund subscription/switching/redemption fees
Subscription Subscription fees are differentiated between front-end and back-end load funds according to the timing of collection:
  • Front-end load:Upon subscribing to a fund, the bank shall collect a subscription fee based on the total value of the entrusted assets.
  • Back-end load:Also known as a Contingent Deferred Sales Charge, this charge is calculated as the lower of the market price or trust principal at the time of redemption, multiplied by a specified fee rate (usually determined by how long the investor has held these fund assets). The charge is deducted from the redemption proceeds by the fund company, and the correct amount calculated and collected by the fund company.
Switching Investors may switch fund assets between various different funds in the same fund series, and there might be fee charged by fund companies, which is approximately 0 to 0.5% of the total amount switched. Additionally, the bank shall charge additional switching fees for each switching transaction.
Redemption The bank shall collect a trust management fee at the time of redemption based on the customer's investment period. This fee shall be deducted from the redemption proceeds.
(Some funds have rules where redemption fees are charged for short-term trades. Investors should carefully read the fund prospectus.)
Fees Charged During the Fund Holding Period
Management fees Including the fund company's investment, operational, and management expenses. These fees shall be automatically deducted from the fund's assets, and investors are not required to make additional payments to cover these fees.
Custodian fees In order to pay fees charged by the asset custodian organization. Custodian fees are automatically deducted from the fund's assets, and investors are not required to make additional payments to cover these fees.
Other expenses Direct expenses incurred from buying and selling fund assets, fees for hosting beneficiary meetings, tax liabilities... etc.

Mutual Fund's Dictionary

  • Beneficiary Certificates

    • When investors subscribe mutual funds, the trustee or fund management company shall issue beneficiary certificates to investors, representing their rights to the fund. Most fund companies now do not issue beneficiary certificates (which are only issued if requested by the beneficiary), and replace these certificates with purchase or sale confirmation statements.

  • Mutual Fund Net Asset Value

    • Mutual fund net asset value per unit = This net asset value(NAV) is divided by the total number of outstanding units. And this unit value is what the fund's purchase and sale price for that transaction day is based on.
      *Note: Net Asset Value (NAV) = Total asset value of the fund - All liabilities and averaged amortized costs.

  • Fund Manager

    • Fund managers represent the fund company in managing the mutual fund, and also represents the research team in making investment decisions to operate the fund.

  • Fund Switching

    • Investors of open-end funds may apply for their fund investments to be switched into another fund. However, investments may only be switched into another fund issued by the same fund company and the investor's sales agent also offers.

  • Fund Redemption

    • When a fund investment is redeemed, all beneficiary certificates held by the investor shall be converted into cash proceeds and transfer to an account designated by the investor.

  • Ex-dividend Date

    • The day following the record date (which varies according to each fund company's regulations), used to calculate dividend amounts and distribute them.

  • Dividend Record Date

    • On the record date, the list of investors holding the fund will be settled to confirm eligibility for dividends. Typically, investors who hold the fund on the record date will receive interest distributions for that month.

  • Fund Liquidation

    • Fund liquidation takes place when a fund is to be shut down. During this process, the fund company settles all assets of a fund and converts it into cash, then distributes this cash back to the fund's trust beneficiaries based on the proportion of each beneficiary's investment in the fund.

  • Prospectus

    • The prospectus describes information such as the mutual fund's investment goals, types, and fees. Investors should ensure that they sufficiently understand all information presented in a fund's prospectus, and evaluate whether the fund's investment characteristics and risks are suitable for them, in order to make better investment decisions.

  • Short-swing Trading

    • Fund companies shall charge an additional fee if this transaction is considered by the fund company to be a short-swing trade, which means investor only holds a fund investment for a short period of time (different fund companies have different rules on how long investments need to be held) before switching or redeeming their investment. The short-swing trading fee shall be deducted from the switching or redemption amount. Fund companies also have the right to put investors deemed to have engaged in short-swing trades on a monitoring list, or restrict them from making further transactions. Short-swing trading rules for each fund company are based on rules provided in the fund company's most recent prospectus.

Smart Selection of Funds

Understanding your own Risk Tolerance Level

It's essential to understand your own risk tolerance level first and select products that correspond to your risk preferences in order to choose suitable investment products from a diverse range available in the market.
→ Let's find out which term you belong to? Start your "Evaluation on the Level of Risk Tolerance"

Risk Tolerance Level The risk return levels of investable mutual funds
Conservative RR1~RR2
Moderate RR1~RR3
Growth RR1~RR4
Aggressive RR1~RR5

What is the next? Let's see which funds are suitable for beginners ↓

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Fund Performance Measures

Subscription Tips

Which Investment Strategy Suits you More?

Who is Suitable for "Lump Sum Investment" ?

  • Prefer to invest by waiting for best market time, allowing for greater profits to be made when the market rises in the future.
  • Minimum subscription amount:Starting from NT$10,000.

Who is Suitable for "Dollar Cost/Value Averaging Investment" ?

  • Prefer to invest for the long term, reduce costs and risks through phased entry, with the concept of average cost.
  • Minimum subscription amount for Dollar Cost Averaging Investment starts at NT$1,000;For Value Averaging Investments starts at NT$5,000.

Mastering Your Smart Investment Systems, Let's Select the Suitable Mechanism for Dollar Cost/Value Averaging Investments↓

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  • Customizable Investment Dates:Set any day as your desired fund deduction day, allowing for greater flexibility and efficiency in wealth management. → Check now
  • Dollar Cost Program:Enjoy a discount on subscription fees up to 70% off. If successful deductions accumulate to 31 times and above, you will be eligible for a 0% redemption fee, allowing you to save more on long-term investments.→ Check now
  • More Regular Investment:Pre-set automatic execution for high and low deduction points, making it easier for you without the need to monitor daily. → Check now

Convenient Digital Features

Upon subscription or after completion, you can visit the E.SUN Internet Banking or Mobile Banking App to set up "Fund Stop-loss/Stop-gain Notifications". When the return rate reaches your pre-set stop-loss or stop-gain thresholds, notification messages will be sent to assist with investment performance management.

Steps of Wealth Management

Investment Warning for Funds
The investment warning for mutual funds: Each fund has been approved or authorized to take effect by the Financial Supervisory Commission, but it does not mean that there is no risk. The Bank and fund management companies cannot guarantee the minimum investment return of the funds, based on their past performance. The Bank and fund management companies are only responsible for their due diligence and do not take responsibility for any profit or loss of the funds. Investors should carefully read the fund prospectus before investing. The risks and costs (including distribution costs) that the investment in the fund should bear have been disclosed in the fund prospectus or investor notices. Investors can check this information on the Public Information Observation System or overseas fund information observation system. Mutual funds are not deposits and the investment in mutual funds is not within the scope of deposit insurance. Investors should bear the profits and losses themselves. Mutual fund investment has risks. This risk may cause losses to the principal and the maximum possible loss may be the entire trust principal. Investors should make investment decisions based on their own judgment.