The reason why tiered funds set up irregular conversions is that when the net value of the fund rises or falls sharply, the leverage of the B share of the tiered fund (hereinafter referred to as "B share") will also decrease or increase. When the net value of the basic share (often called the "fund of funds") reaches 1.5 yuan, the net value leverage of share B is approximately 1.5 times. In order to prevent the leverage level of B shares from further declining due to the increase in the net value of the underlying shares, the contract terms of tiered funds usually clearly stipulate the conditions for upward conversion from time to time.

The principle of irregular conversion of hierarchical funds is to rebalance the net value and shares of the basic shares and sub-shares of hierarchical funds. Taking Penghua's non-bank financial classification as an example, when upward conversion is triggered, the net value of Penghua's non-bank B share is much greater than the net value of Penghua's non-bank A share. The specific method of rebalancing is to convert all parts of Penghua's non-bank A share and Penghua non-bank B share whose net value is greater than 1.000 yuan into basic shares. Next, the net value of the basic share is adjusted to 1.000 yuan through share rebalancing, so that the net value of the basic share and the sub-share is both 1.000 yuan.

It can be seen that irregular upward conversion does not affect the number of sub-shares, but will increase the number of basic shares on the market. Investors who hold on-site and off-site basic shares before conversion will increase the number of shares after occasional upward conversion due to net worth adjustments. Before and after the conversion time, the net value of the fund held by all share investors is equal.

Irregular upward conversions have no substantial impact on investors of Share A. Since the irregular upward conversion will convert the part of A's share whose net value is greater than 1.000 yuan into the basic share, the impact on A's share can be understood as a regular conversion in advance. It should be noted that, similar to the regular conversion, investors of A shares will continue to hold the same number of A shares and a small portion of the basic shares after irregular upward conversion. Since the basic shares track the CSI 800 Non-Bank Financial Index, this part of the basic shares will be subject to market risk of index fluctuations.