Want to grow your wealth through fund investing, but feel overwhelmed by the complex subscription and redemption processes and the wide range of fund fees? Many beginner investors hesitate because they do not understand the full fund trading process, or their final returns are affected by overlooked hidden costs. Do not worry! This article will provide you with the clearest guide to the fund trading process, from account opening and fund selection to placing subscription orders and redeeming profits, while also breaking down various fund fees in detail, helping you avoid investment traps and take a steady first step.
Before entering the fund market, you must first understand two fundamental terms: “subscription” and “redemption”. These correspond to “buy” and “sell” in stock trading, but they carry specific meanings and processes in fund transactions.
Fund subscription refers to the act of “purchasing” or “buying” fund units from a fund company. When you are optimistic about the future potential of a particular fund and decide to invest, you will execute a subscription. You can submit a subscription request through channels such as banks, brokerage firms, or online fund platforms, and pay the corresponding amount. Once completed, you become one of the fund holders, and your capital is pooled into the fund’s assets and managed by professional fund managers.
Fund redemption is the opposite of subscription. It refers to “selling back” your fund units to the fund company in exchange for cash. When you believe your investment goal has been achieved, need funds, or want to switch investment targets, you can submit a redemption request. The fund company will calculate the amount you can receive based on the fund’s NAV on the day of your request or the next trading day, and transfer the funds to your designated account within a few working days.
“Subscription” means investing capital in exchange for fund units, while “redemption” means selling units to receive cash.
Fund trading prices are not real-time market prices like stocks, but are based on the “Net Asset Value” (NAV). The calculation of NAV is relatively straightforward:
Fund Net Asset Value (NAV) = (Total Assets of the Fund – Total Liabilities) / Total Units Issued
Fund companies calculate NAV only once per day (usually after market close). Therefore, when you place a subscription or redemption order today, the transaction price will be based on the NAV published after the market closes on the same day. This is known as “forward pricing”. This is very different from stock trading, where prices can be specified, and is something beginners need to pay special attention to.
After understanding the basic concepts, we will now break down the actual fund trading process into five simple steps, allowing you to get started easily by following along.
Five Steps to Fund Investment: Account Opening, Evaluation, Selection, Subscription, Redemption.
There are three main channels for purchasing funds, each with its own advantages and disadvantages. The choice of channel will directly affect your fund fees and convenience.
| Channel Type |
Advantages |
Disadvantages | Suitable For |
| Traditional Banks | Many branches with dedicated service; convenient fund deposit and withdrawal, integrated within the same account | Relatively limited fund selection; subscription fees are usually the highest | Investors who prefer in-person service and are not familiar with online operations |
| Brokerage Firms | Can invest in multiple instruments such as stocks and funds; professional investment advice | Fund selection may not be the most comprehensive; fees are between banks and platforms | Investors who want to manage multiple investment instruments within a single account |
| Online Fund Platforms | The widest and most comprehensive fund selection; the lowest subscription fees, sometimes even zero fees; transparent information and convenient comparison | Almost no physical service, all processes must be completed online; fund transfers may require additional time | Self-directed investors who seek low costs, a wide range of choices, and are familiar with online operations |
After selecting a channel, you need to prepare identification documents and proof of address, and follow the instructions to complete the account opening process. During this process, financial institutions are required by regulations to ask you to complete a “Know Your Customer” (KYC) questionnaire. This questionnaire is designed to understand your investment experience, financial situation, risk tolerance, and investment objectives. Based on the results, you will be classified as a conservative, balanced, or aggressive investor, which will serve as the basis for recommending funds with corresponding risk levels.
This is the most critical step. There are many types of funds, and beginners can start with the following broad categories:
When selecting, in addition to considering the fund type, you should also carefully read the “prospectus” to understand its investment objectives, strategies, historical performance, and fee structure. This document is the most authoritative source of information about a fund. To learn more fund selection techniques, you can refer to this guide on how to buy funds: a beginner’s guide covering everything from account opening and subscription to redemption.
After selecting your preferred fund, you can proceed with the subscription order. There are two main methods:
The ultimate goal of investing is to realize profits. Common redemption timing includes reaching a preset profit target, finding that the fund’s performance is below expectations, or having an urgent need for funds. The redemption process is simple. You only need to submit a redemption request on the trading platform and choose the number of units or amount to redeem. It is important to note that the funds will not be credited immediately. It usually takes several working days, (known as T+N days, for the funds to arrive.
Fund fees are the hidden killer that erodes your investment returns, so fully understanding them is crucial. Fund fees are mainly divided into two categories: transaction fees and ongoing expenses.
Fund fees are like an iceberg. Transaction fees are only the tip, while ongoing expenses are the main factor that erodes returns.
These are one-time charges incurred when you buy, sell, or switch funds.
These fees are not directly charged to you but are deducted daily from the fund’s NAV, making them easier to overlook.
All ongoing expenses are combined into a ratio called the “Total Expense Ratio” (TER). This represents the total annual operating cost of the fund as a percentage of its assets and is an important metric for comparing the actual cost of different funds. You can find this information in the fund’s prospectus or monthly reports.
To reduce the cost of fund investing, you can focus on the following:
A: This depends on the fund type and registration location. Generally, equity funds have shorter settlement periods (typically 3 to 5 working days), while funds investing in overseas markets or less liquid assets may take 7 to 10 working days or longer.
A: “T” represents the transaction day, which is the day you place the order. T+1 and T+2 refer to the first and second working days after the transaction day. Fund transactions use the NAV calculated after the market closes on T day as the transaction price, while settlement and unit confirmation are usually completed on T+N days. For example, T+2 settlement means the funds are credited to your bank account on the second working day after placing the order.
A: Yes, most funds allow investors to pause or terminate a regular investment plan at any time and to submit redemption requests at any time, offering high liquidity. However, changes or cancellations usually require several working days in advance to take effect before the next deduction date. When redeeming, you should also consider the settlement time and whether short-term redemption fees apply.
A: This depends on your tax jurisdiction. In Taiwan, capital gains from fund trading are currently tax-free, but if the fund’s income includes domestic dividends or interest, it will be included in personal income tax or subject to separate taxation. In Malaysia, capital gains from funds for local residents are generally also tax-free. It is recommended to consult a local tax professional for the most accurate information.
In summary, mastering a clear fund trading process, understanding fund subscription and redemption mechanisms, and carefully evaluating all fund fees are the foundation of successful investing. Although the process may seem complex, by following the steps in this guide, from choosing the right channel and opening an account to selecting funds and executing transactions, you can get started with ease. Most importantly, take the first step and continue learning along the way. Start comparing different investment platforms now, choose the plan that suits you best, and implement your financial plan!
