The investment principle of index bond fund is to match the relevant characteristics of benchmark index investment in order to obtain roughly the same rate of return as bond index. A large number of facts have proved that it is difficult for any bond market participant to have extraordinary interest rate forecasting ability and to outperform the index; According to the records of the first three years in September, 2002, 18 of the American 19 index bond funds all achieved better than average returns. Compared with ordinary bond funds, index bond funds have at least the following three characteristics.

Low risk

Because the diversification method focuses on the target bond index, it is more flexible in the change of individual bonds, which effectively reduces the impact of the decline of individual bonds on the whole portfolio and minimizes the risk. The risk of index bond funds is usually lower than that of traditional bond funds and only higher than that of money market funds.

Management costs and transaction costs are relatively low.

Compared with traditional bond funds, index bond funds have great advantages. Because index bond funds often choose bonds from top to bottom, buy bonds and hold them according to the composition of the index, and fine-tune the investment portfolio when necessary, so the management cost is lower, thus reducing the fund cost. According to American market statistics, the average cost of index bond funds is only 0.35%, while the average cost of non-index bond funds is 0.96%. Most investors are willing to pay 0.75%. The profit and loss of bond funds usually lies in the difference of total income of less than one percentage point. Foreign studies have found that 85% or even 95% of institutional investors can't get the average income of the market because their costs account for 20% of the income.

Stable and long-term income

The stable returns of index bond funds are in line with the preferences of investors who have been pursuing similar returns in the market for a long time. In the past 30 years, the performance of index funds has defeated most active management funds and become the mainstream variety of contemporary bond funds. According to Morningstar's data, during the ten years from 1988 to 1998, the average annual return rate of bond index funds was 8.9%, while that of traditional bond funds managed actively was 8.2%. Index bond funds outperform 85% of traditional bond funds.

At present, China's bond market is still in its infancy, and it has the ability to continuously expand, especially corporate bonds (including convertible bonds), with low risk and high yield. The continuous development of the bond market will gradually improve the market effectiveness, and non-systematic risks will gradually replace systematic risks. When most investors can't ensure that they can beat the market average rate of return by active investment strategy, index bond funds will occupy more and more market share.