Index fund refers to a fund product that takes a specific index as the target index, takes the constituent stocks of the index as the investment object, builds a portfolio by purchasing all or part of the constituent stocks of the index, and tracks the performance of the target index. So what's the difference between index funds and general funds? The following small series will answer your question.
The difference between index funds and general funds
Investment strategy: The investment strategy of index funds is to track specific market indexes, such as stock indexes (such as Standard & Poor's 500 Index and Nasdaq Index) or bond indexes (such as Pohland Bond Index). Their goal is to replicate the performance of the index as comprehensively as possible. General funds are selected and managed by fund managers according to their own research and analysis and their own investment views.
Fees: Index funds usually have lower fees. Because tracking the index only requires a relatively simple operation, the management cost and transaction cost of index funds are low. In contrast, the management cost of general funds is higher, because more active management and trading are needed.
Actively manage risks: the investment experience of ordinary funds actively manages risks, and the investment decision of fund managers may affect the performance of funds. The goal of index fund is to replicate the performance of index, which does not depend on the personal decision of fund manager, so it is less affected by active risk management.
Systematization: the investment strategy of index funds is systematic, following the predetermined index rules and making corresponding adjustments when adjusting the index. This makes the investment of index funds more transparent, predictable and consistent, and reduces the influence of emotional factors on investment decisions.
Advantages of investment index funds
Low cost: Because the operation of index funds is relatively simple, the management cost and transaction cost are usually low. This means that investors can get higher net income.
Diversified investment: index funds track market indexes and invest in multiple stocks or bonds, which has good risk diversification. This helps to reduce the single risk of a specific stock or bond in the portfolio.
Predictability: Because the investment strategy of index funds is systematic and transparent, investors can accurately predict the performance of their return on investment.
What are the characteristics of index funds?
The characteristics of index funds are crucial in the following aspects:
(1) Low cost
Because of passive investment, the fund management fee is generally low, and the average management fee of American market index funds is about 0. 18%-0.30%. At the same time, due to the holding strategy of index funds, they do not exchange shares frequently, and the transaction commission and other expenses are far lower than those of active management funds. This difference sometimes reaches 1%-3%. Although this is a small number in absolute value, the long-term cumulative result will have a great impact on the fund's income because of the compound interest effect.
(2) Disperse and prevent crises
On the one hand, because index funds are widely dispersed, the fluctuation of any stock will not affect the overall performance of index funds, thus dispersing the crisis. On the other hand, because the indexes pegged by index funds generally have a long history to track, the crisis of index funds can be predicted to some extent. In addition, the investment strategy of passively tracking index stocks can also effectively reduce the unsystematic crisis and the moral crisis of fund managers.
(3) Delaying tax payment
Because index funds adopt the strategy of buying and holding, the turnover rate of the stocks they hold is very low. Only when a stock is removed from the index, or when investors demand to redeem their investments, index funds will sell their stocks and realize some capital gains. In this way, the capital gains tax paid every year is very small. Coupled with the compound interest effect, delaying tax payment will bring many benefits to investors, especially after years of accumulation.
(4) Less monitoring
Since the operation of index funds does not require active investment decisions, fund managers basically do not need to monitor the performance of funds. The urgent task of index fund managers is to monitor the changes of corresponding indexes to ensure that the composition of index funds is suitable for them, so as to achieve the goal of "making money after earning indexes".
Income characteristics of money funds and short-term bond funds
First of all, from the income characteristics of money funds and short-term debt funds, both of them belong to low-risk investment varieties. Money funds mainly invest in the money market, while short-term debt funds mainly invest in bonds due within one year, and the security and liquidity of the underlying assets are very good. Judging from the yields of the two, the yield of the money fund is currently around 2-3.4%, and the short-term debt fund can reach a yield of around 5-6% when the stock market goes down this year. Note that this is the performance this year. Fixed investment of funds is a simple and easy way to guide investors to make long-term investments and average investment costs.
What's the difference between a money fund and a short-term debt fund?
First of all, the essence of the two is different:
1, the essence of the money fund: the money fund is an open-end fund that collects idle funds from the society, is operated by the fund manager and kept by the fund custodian, and specializes in investing in money market instruments, with low risk.
2. The essence of short-term debt funds: short-term debt funds are named after the short-term bonds they invest in. The investment scope is limited to bonds, central bank bills, bank deposits and other fixed-income varieties, and stocks and convertible bonds are not invested; Short-term debt funds mainly invest in the inter-bank bond market.
Second, they have different characteristics:
1. The characteristics of the money fund: high security, high liquidity, stable income and "quasi-savings".
2. The characteristics of short-term debt fund: it is a fund product with higher income than money market fund, steady growth in net value and equivalent liquidity.
Third, the redemption mechanisms of the two are different:
1. The redemption mechanism of the money fund: zero commission, and the redemption money T+2 is received.
2. Redemption mechanism of short-term debt funds: the general term is within one year, and the average term is 120 days.