First, the cost of index funds is relatively low, which is the most prominent advantage of index funds. The cost mainly includes three aspects: governance cost, business resource cost and sales cost. Because index funds adopt the holding strategy and do not need to exchange shares frequently, these expenses are far lower than those of actively managed funds, and this difference inadvertently reaches 1%, which will have a great impact on the fund's income.
Because the index fund adopts the investment strategy of tracking the index, the fund manager does not need to spend a lot of time and energy to choose the type and trading opportunity of investment objects such as stocks, thus reducing the management cost of the fund. On the other hand, because index funds generally adopt the strategy of buying and holding, they usually don't adjust their portfolios frequently, but only respond to the changes of the constituent stocks of the tracked index, so their transaction costs will be lower than those of other active investment funds.
Second, index funds reduce investment risks through process diversification. Because index funds make extensive diversified investments through process tracking index, their portfolio returns are equal to those of reaction index, and the fluctuation of any single stock will not have a great impact on the overall embodiment of index funds, thus reducing the investment risk of investors as a whole. Therefore, investors in index funds do not need to worry about the impact of the sharp decline in individual stocks on fund returns.
Third, the performance of index funds is highly transparent. As long as investors see the rise and fall of the underlying index tracked by index funds, they can generally judge that the net value of the index funds they invest in has changed, with some ups and downs. For some investors who are good at judging the big situation but can't grasp individual stocks, they should invest in index funds to avoid the trouble of making indexes but not making profits.
Fourth, the operation of index funds is simple. Theoretically, the operation measures of index funds are very simple, as long as the securities corresponding to the proportion of each securities in the index are purchased and held for a long time.
Fifth, the governance process is less affected by wages, effectively avoiding non-systematic risks. The investment governance process of index funds is mainly based on the target index of passive tracking response, rather than frequent active investment. In this way, in the process of governance, the influence of wage status can be reduced by trading business in a more exemplary process. The advantage of index funds is that they can effectively avoid unsystematic risks.