Is the trend of index fund the same as that of index? According to the truth, the index fund should be how much the index rises and how much the fund rises, but sometimes there is a big deviation between the index and the index fund. The main reasons are:

Large subscription

A large number of subscription of index funds will lead to tracking errors of index funds, and a large number of subscription will lead to dilution of gains. Because the fund transaction is purchased on the same day, the share is confirmed on the second trading day, and the profit and loss can be viewed on the third trading day. On the same day, the fund was purchased in large quantities, and the next day it enjoyed gains and benefits. However, this fund is still on the way and has not been confirmed, so it is not included in the total size of the fund, so the fund manager cannot operate with this fund. Similarly, if the fund falls on the second day of large-scale subscription, the decline will be diluted.

Large redemption

Large redemption will also have an impact on the fund price.

According to the fund contract, more than 25% of the redemption fee should be included in the fund's net assets. Assuming that the redemption rate of an index fund is 0.5% and 50% of the fund shares are redeemed, if the redemption fee of 25% is included in the fund's net assets, the fund's net assets will increase by 0. 125% without considering other factors.

When redeeming the fund, the price shall be calculated according to the net value on the day of redemption. After redemption, the fund manager needs to sell some shares on the second trading day. Suppose an index fund redeems 50%, and the index rises by 5% at the highest and falls by 5% at the lowest the next day, and the price is zero at the close. Then, if the fund manager can sell when it rises by 5%, this redemption will increase the net value of the fund by 5%.

Impact of stock suspension

Suppose that the stock funds of an index fund are suspended for 20%, and the daily fluctuation range of the stock is zero. If the index rises by 5% on that day, the net value of the index fund will rise by 1%. On the contrary, the index fell by 5%, and the net value of index funds decreased by 1%.

There are also factors that affect the index tracking error, such as dividend distribution of index funds and position adjustment of constituent stocks.