The investment operation of index funds is the process of tracking the index by buying the constituent stocks (or other securities) of the index, which mainly includes opening positions, reinvesting and tracking adjustment. The specific operation process can be summarized as the following aspects:

First, select the indicators to track the target.

Different index funds have different income and risk expectations, so we should choose different underlying indexes to meet the investment needs of funds. We can choose an index that reflects the whole market as the tracking target to obtain the average return of the market, or we can choose a specific type of index (such as large-cap stock index and growth index) as the tracking target to obtain the corresponding return on investment under the premise of taking corresponding risks.

Second, the construction of investment portfolio

After determining the underlying index, you can build a corresponding portfolio and buy various securities that constitute the corresponding index according to a certain proportion. Considering the cost and efficiency of opening positions, we can use complete replication, stratified sampling, industry matching and other methods to build a portfolio. Complete replication is a method to construct a portfolio completely according to the various securities that constitute the index and their corresponding proportions; Stratified sampling and industry matching use statistical principles to select the most representative part of the securities that constitute the index instead of all the securities to construct the fund's investment portfolio.

Third, the adjustment of combination weight.

Under normal circumstances, the constituent stocks of the indexation index will be adjusted regularly and irregularly. The addition of new shares and the issuance of existing shares will cause changes in the weight of each constituent stock in the underlying index, so the index fund must also make corresponding adjustments in time to ensure the consistency of the fund portfolio and the index.

Fourthly, the monitoring and adjustment of tracking error.

Tracking error is the difference between the return of index fund and the corresponding index return. Due to the limitation of transaction cost and trading system, the income of any index fund can't be exactly the same as that of the underlying index. Fund managers need to measure and monitor this difference in time to ensure that this difference remains within a certain range. If there is an abnormal deviation, the fund manager should adjust the portfolio plan of the index fund in time on the premise of fully analyzing the reasons.