When it comes to index funds, it is natural to leave the index. The index refers to the stock selection rules. Its purpose is to choose a basket of stocks according to certain rules and reflect the average price trend of this basket of stocks. Generally speaking, we can observe whether thousands of stocks go up or down on a certain day through the index.
The index is not produced out of thin air, it is mainly formulated by stock exchanges and index companies. There are three index series in China, namely Shanghai Stock Exchange, Shenzhen Stock Exchange and China Securities Index Co., Ltd. ..
There are three major indexes in America: Nasdaq, Standard & Poor's 500 and Dow Jones. China Mainland and Hongkong mainly have Hang Seng Index and H-share Index. In addition, some world-renowned index development companies, such as Morgan Stanley, have also developed MSCI series indexes. These indexes all have their own characteristics, which respectively reflect the stock price trends of different countries and regions.
General index fund
Index fund is a fund product developed by a fund company, which buys exactly the same basket of stocks according to the stock selection rules of the index. Because the number, types and proportion of stocks held by index funds are very close to the index, the performance of index funds is also very close to the index.
Index fund is a very special stock fund. Different from ordinary stock funds, ordinary stock funds depend on the investment level of fund managers, and the performance of funds depends largely on the ability of fund managers; The performance of index funds has little to do with fund managers, but mainly depends on the performance of the corresponding index.
General index funds are generally purchased on third-party software.
Stock accounts cannot be traded directly.
Exchange traded fund
ETF refers to an index fund that can be directly traded through stock accounts, and its income is closely related to the underlying index. Buying an ETF is equivalent to buying a stock portfolio included in the index.
ETF is equivalent to a common stock managed by a fund company.
What is the relationship between index and ETF?
Every ETF index fund has a benchmark index. Buying an ETF fund is equivalent to buying a stock portfolio included in the index. ETF income is closely related to the underlying index.
ETF linked fund
Funds that purchase ETF funds are opened for users without stock accounts.
ETF advantage
The transaction cost is low, and the trading method is as free as stocks. Global investment can be realized. No matter the US stocks, Hong Kong stocks or white horse stocks in the industry, you can find corresponding etf funds to spread risks. Buying an ETF is equivalent to buying a stock portfolio, and you are no longer afraid of individual black swans.
Buffett, the investment guru, has repeatedly recommended index funds at shareholders' meetings. Among them, at the shareholders' meeting in 2008, someone asked Buffett: "If you are only in your thirties, how will you invest your first 1 10,000?" Please tell us the type and proportion of assets invested? Buffett replied, "I will invest all my money in a low-cost fund that tracks the S&P 500 index, and then continue to work hard. "
Since even Buffett recommends index funds, index funds should of course be the first choice for ordinary people to invest. However, before investing, we need to know the excellent varieties of index funds in detail.
Benefits of index funds
Why does Buffett admire index funds so much? This is because index funds have many unique benefits. It has three main advantages and can help us avoid some investment risks.
(1) The first advantage of the index fund "Immortality" is that it can "live forever". What is eternal life? Immortality here means that index funds can achieve immortality by absorbing new companies instead of old ones. Theoretically, the life span of an index is equal to the life span of a country.
(2) Index funds can rise for a long time. The second advantage of index funds is that they can rise for a long time, which is higher than other asset classes. This is also a feature of stock assets. Let's give an example. The index corresponding to Hong Kong stocks is the Hang Seng Index, which was born in 1964. At first, the Hang Seng Index was 100. By 2065438+the beginning of June 2007, the Hang Seng Index had risen to 26000 points, which was more than 200 times in 53 years. If dividends are included, the Hang Seng Index is 67,338 points, which has been more than 600 times in 53 years! Why can index funds rise for a long time? A more general explanation is that the companies behind the index will continue to put the money they earn into production every year, which will bring more profits in the coming year. This constant interest rate will push the index up.
(3) Low cost of index funds Another advantage of index funds is their relatively low cost. The cost mentioned here is mainly aimed at the operating cost of the fund itself. When each fund is in operation, it will collect fund management fees and custody fees every year.
Management cost
Management fee is the main source of income for fund companies. Active funds generally charge 1.5% of the fund size as management fees. However, the management fees of index funds are relatively low. The average management fees of domestic index funds are 0.69%, and the management fees of some large-scale and long-running funds will fall below 0.5%.
trustee fee
The custodian fee is paid to the custodian of the fund. The huge assets of general funds will be held by third-party custodians, such as large banks. Custody fee is the fee paid to the custodian bank. The average custody fee of domestic index funds is about 0. 14%, and the lowest can reach 0. 1%. The management fees of US stock index funds are below 0.2%, and some can even reach 0.05%. "Immortality, long-term rise and low cost" are the three main advantages of index funds. In addition, index funds can also help us avoid the most common risks in investment.
Comparison between ETF and LOF;
ETF is a transactional open-end index fund, also known as exchange-traded fund, which is an open-end fund with variable fund share and is listed and traded on the exchange.
LOF is called "open-end fund" in English and "listed open-end fund" in Chinese. In other words, after the issuance of listed open-end funds, investors can purchase and redeem fund shares at designated outlets, or buy and sell funds on exchanges.
Although LOF and ETF are both open-end funds, which can be purchased, redeemed and traded on the market, the difference between them is obvious, and this difference is determined by the product structure.
ETF applies for physical redemption, LOF applies for cash redemption.
What does this mean?
When purchasing and redeeming ETF, investors do not use cash, but use stocks to operate. When purchasing ETF, investors need to buy a basket of stocks corresponding to the post-index in advance, and then purchase ETF shares with a basket of stocks; When redeeming, investors get not cash, but a corresponding pile of stocks.
The subscription and redemption of LOF are all done in cash, which means that investors buy fund shares in cash and then redeem them to get cash.
In addition to the redemption conversion mechanism, let's look at other differences.
0 1 ETFs with different redemption locations can only apply for redemption through the exchange, and cannot apply for OTC redemption. This is because stock trading can only be conducted on the spot, and LOF can apply for redemption on the spot or through off-site outlets such as banks, sales platforms and fund official website.
The minimum number of different ETFs is limited, with a minimum share of 500,000 copies. The threshold is high, and investors with a certain capital scale can participate, which is more suitable for institutions and powerful individual investors. The starting point of LOF subscription is 65,438+0,000 yuan, which is relatively close to the people and suitable for the majority of small and medium investors.
03 Different investment positions Because LOF adopts early redemption, the fund needs to reserve some cash to deal with investors' irregular redemption, so LOF funds cannot achieve Man Cang, and its tracking benchmark is generally not index return, but index return *95%+ deposit interest * 5%; ETF adopts stock redemption and stock purchase and redemption. It needs to reserve cash from the beginning, which is basically operated by Man Cang, and the benchmark for tracking is also index income.
Operating expenses are different. The management fee of most ETFs is 0.5. % and the custody fee is 0. 1%, while the LOF management fee is 0.75% and the custody fee is 0. 15%. At the same time, the transaction cost of ETF is much lower than LOF, so the operation and management cost of ETF is also lower than LOF.