ETF is a kind of index fund, which tracks a specific index. Investors buying and selling an ETF is equivalent to buying and selling the index it tracks. This small series sorts out what the purchasing process of ETF funds looks like for your reference.
What is the purchasing process of ETF funds?
Opening a securities account: First, you need to open a securities account with a securities company in order to trade and hold fund shares.
Research and selection of ETF funds: After opening a securities account, you can inquire and study different ETF funds through the website of the securities company, the investment platform of the fund company official website or other financial institutions, and learn about their investment strategies, tracking indexes and fees.
Place an order for purchase: Once the ETF fund to be purchased is determined, you can place an order through the online trading platform, mobile APP or telephone. When placing an order, you need to specify the ETF fund code and purchase quantity to be purchased.
Confirm the transaction: After placing an order, there is usually a transaction confirmation to confirm that your order has been executed.
Settlement and liquidation: After the subscription of ETF funds is completed, the corresponding funds will be deducted from your securities account, and the ETF fund shares will be credited to your securities account.
How to distinguish ETF funds from other funds
Trading characteristics: ETF funds are listed and traded on the exchange, which is similar to stocks and can be traded on the exchange. Other funds are usually purchased or redeemed through fund companies or third-party sales channels.
Market price and net value: the price of ETF funds will fluctuate with market demand, and usually there will be a certain premium or discount with the net value of the fund portfolio. The prices of other funds are usually calculated according to the net value of the funds.
Asset allocation: ETF funds usually track a specific index and allocate assets by investing in the assets contained in the index. Other funds' portfolios may contain many different asset classes and investment strategies.
Liquidity of funds: As ETF funds are listed and traded on the exchange, investors can buy and sell according to market demand, which has high liquidity. Other funds may need to be purchased and redeemed through fund companies or other institutions, and the liquidity of funds is low.
Detailed explanation of ETF fund
Structure: ETF funds usually adopt the structure of open-end funds, that is, investors can buy and redeem fund shares at any time according to their own needs.
Fund size: ETF funds are relatively large, because they can be listed and traded on the exchange, attracting a large number of investors to participate.
Portfolio: ETF portfolio usually simulates a specific index, such as stock index, bond index, commodity index and so on. This means that the performance of ETF funds will be similar to the index tracked.
Market pricing: the price of ETF funds is determined according to the net asset value of the fund and the relationship between market supply and demand, usually close to or very close to the net asset value of the fund. This is different from the traditional fund pricing method.
Liquidity: ETF funds have high liquidity, because investors can buy and sell ETF funds at any time on the exchange, and the price immediately reflects market supply and demand.
Transaction cost: Trading ETF funds requires transaction commission, which is different from traditional open-end funds. However, due to the low management fees and sales service fees of ETF funds, the overall transaction costs are relatively low.
Why are investment funds good?
Diversification of risks: A fund's portfolio usually contains many different types of assets, and the risk of a single investment is reduced by diversifying risks.
Professional management: The Fund is managed and operated by a team of professional fund managers who have professional investment knowledge and experience and can provide professional investment management services for investors.
Flexibility: Funds usually have high liquidity, and investors can buy and sell fund shares at any time, providing more flexible investment options.
Diversified investment: fund investment usually involves a variety of asset classes, such as stocks, bonds, commodities, etc. , and can achieve a diversified portfolio.
Transparency: The Foundation publicly discloses its positions and investments, so that investors can clearly understand the asset allocation and risk status of the Fund.
What exactly is an ETF fund?
ETF fund is called Exchange-TradedFund, which is an open-end fund and traded through the stock exchange. Different from traditional open-end funds, ETF funds can be listed and traded on stock exchanges, similar to stock trading. Investors can buy and sell shares of ETF funds through the stock exchange without directly trading with fund companies. ETF funds usually track specific indexes, such as stock index, bond index or commodity index, and some ETF funds adopt active management strategy.