With the development of investment market, there are many new concepts and investment varieties, such as linked funds that we are going to discuss today. So what is a linked fund? What are the three misunderstandings about connecting funds? Next, let's take a look at the content of linked funds.

Linked fund

Linked fund refers to the fund that invests most of the raised funds in the ETF of the target index, closely tracks the performance of the target index, pursues the minimization of tracking deviation and tracking error, and adopts the open operation mode. As an investment way to achieve synchronous growth with the market, index funds are widely concerned and favored by investors, so what are the misunderstandings about linked funds?

Three misunderstandings of linking funds

Myth 1: Linked funds are ETF funds.

Many investors believe that the vast majority of linked funds track ETF funds, so they are ETFs. In fact, the investment and trading methods of linked funds are different from those of investing in ETFs. Although investors invest in linked funds and ordinary open-end funds, linked fund managers need to purchase and redeem target ETF fund shares from the primary market or buy and sell target ETF fund shares from the secondary market through the physical form of constituent stocks.

Myth 2: Linked funds can invest in multiple ETF funds.

Some investors think that ETF linked fund is just a FOF and can invest in multiple ETFs. In fact, linked funds invest more than 90% of their assets in fixed-target ETFs. Linked funds have expected risk-return characteristics very similar to their target ETFs, more like the shadow funds of the target funds, so they cannot invest in two or more ETF funds at the same time.

Myth 3: Linked funds can be used for arbitrage.

Linked funds do not aim at arbitrage, but mainly buy ETF baskets through the primary market, with little participation in the secondary market. As a passive index fund, the fundamental purpose of linked fund is to minimize tracking errors and reduce investment costs. If participating in arbitrage will suffer losses due to many uncertain factors, the fundamental purpose will lose its meaning.

So much for the three misunderstandings about linked funds. I hope it can help you understand knowledge and help you invest. Warm reminder, financial management is risky and investment needs to be cautious.