If you came here to learn about the so-called "ETF index funds", let Uncle Net correct you a small conceptual mistake before the article begins: ETF funds are only a type of index funds, and they need You can only purchase if you have a stock account.

However, in real life, most people equate ETFs with index funds. Although this conceptual understanding is not in place, it does not affect actual transactions.

If you are not too confused about the concept and simply want to buy index funds, you can directly read the practical chapter at the end of the article.

If you still want to systematically understand the relevant knowledge of index funds, you can read the previous knowledge chapter.

1. Knowledge

1. What is an index fund?

Funds, as we all know, investors pay to buy fund shares, and then the fund manager uses the investors’ money to buy stocks.

How to judge the trading level of this fund manager? It depends on whether he can outperform the market index.

In the United States, this index is the S&P 500 Index. In China, this index is the CSI 300 Index.

Can fund managers beat the index?

In the United States, the answer is difficult.

John Bogle, the godfather of index funds, once compiled relevant data.

From 1945 to 1975, the average annual return of the S&P 500 Index was 11.3, while the average annual return of stock funds was 9.7. The former earned 1.6 more per year than the latter.

In 2015, he compiled data from the past 30 years. Surprisingly, the results are almost exactly the same as they were 40 years ago.

The average annual return of the S&P 500 Index is 11.2, and the average annual return of stock funds is 9.6. The former still earns 1.6 more per year than the latter.

Since it is difficult for fund managers to outperform the index, why should fund managers bother picking stocks? They can just copy the index.

Funds that copy indexes are index funds. For example, in the CSI 300 Index, the weights of Kweichow Moutai, China Merchants Bank, and Ping An are 4.98, 3.09, and 2.75 respectively. Then use 4.98, 3.09, and 2.75 of the fund assets to buy these three stocks.

Other stocks will follow the same pattern, and you will get a fund that completely replicates the CSI 300 Index, and can easily outperform the active stock picking funds (active funds) managed by half of the fund managers on the market. ).

2. Five major advantages of index funds

2.1 Simple and transparent

Active funds only disclose all positions in semi-annual reports and annual reports, especially in quarterly reports. Only the top 10 largest holdings are disclosed.

Normally, a fund holds 30 or more stocks. It is difficult to grasp the movements of the fund manager by relying solely on the top 10 stocks. Therefore, ordinary investors often have no clue about the fund they are buying. water situation.

Index funds do not have this shortcoming.

Index funds track the corresponding index. For example, the CSI 300 Index Fund tracks the CSI 300 Index. What are the constituent stocks of the CSI 300 Index? What are the weights? These are all public data, and ordinary investors can easily know what types of index funds they bought and how much they invested.

It is precisely because of the simplicity and transparency of index funds that the phrase "index funds are the most suitable investment type for ordinary investors."

2.2 Low holding costs

Since they only need to copy the index, fund managers do not have to worry about stock selection. Index funds have much lower holding costs than active funds.

The annual management fees and custody fees of index funds are 0.5 and 0.1 respectively. The annual management fees and custody fees of active funds are 1.5 and 0.25 respectively. Holding index funds can save 1.15 in holding costs every year.

2.3 Low transaction costs

The low transaction costs are relative to stocks.

When selling stocks, you need to pay a stamp tax of 1‰ of the transaction amount, but ETFs do not.

In addition, many brokerages have now canceled the requirement that "ETF trading commissions are charged a minimum of 5 yuan if they are less than 5 yuan", but stocks are still enforcing this rule.

2.4 Immortality

Index constituent stocks are not static. For example, the CSI 300 Index adjusts the list of constituent stocks every six months, removing stocks that do not meet the conditions and adding high-quality stocks that meet the conditions. It can be said that as long as the stock market does not close, the index will be "immortal."

2.5 Avoiding Black Swan Risks

The biggest risk in buying individual stocks is the black swan risk, such as Zhangzi Island where the "scallop swims away". Whoever encounters this kind of stock will be unlucky.

The index generally does not include such stocks, and the probability of encountering a black swan when buying the index is low.

Taking a step back, there are dozens or hundreds of individual stocks in an index. Even if one of them has a thunderstorm, the impact on the overall industry will be limited.

3. ETF is a type of index fund

After talking about index funds, we can finally talk about why ETF is a type of index fund.

The full English spelling of ETF is ExchangeTradedFund, which literally translates to "exchange-traded fund".

Initially, ETFs are not entirely index funds. There are also active ETF funds. As long as they are listed on the exchange, they can be called ETFs.

However, the development of active ETF funds has been unsatisfactory and has basically disappeared from the market. People began to use ETF to specifically refer to index funds listed on exchanges, and the translation of ETF also became "traded open-end index funds."

Note that ETFs specifically refer to index funds listed on exchanges. There are also many index funds outside the exchange, such as ETF-linked funds and index-enhanced funds. These funds are collectively called OTC index funds.

The difference between ETFs and OTC index funds is mainly reflected in the application and redemption methods, trading methods, investment methods and investment objectives.

3.1 Subscription and redemption methods

ETF requires a basket of stocks for subscription and redemption. For example, if you want to buy the CSI 300 ETF, you must allocate 300 stocks according to the weight of the CSI 300 Index and hand them over to the fund company in exchange for fund shares.

Similarly, if you sell fund shares, the fund company will not give you cash, but will give you 300 stocks. You have to sell 300 stocks before you can get cash back.

OTC index funds are relatively simple and can be purchased and redeemed directly with cash.

3.2 Trading venues

ETF subscription and redemption are troublesome, but this is mainly for the over-the-counter market.

In addition to over-the-counter subscription and redemption, ETFs can also be purchased directly on the exchange through stock accounts. The buying and selling rules are the same as stocks, and the buying and selling costs are lower than stocks.

OTC index fund transactions are not so convenient. Subscription and redemption transactions can only be conducted through OTC markets such as fund companies, bank counters, and third-party sales platforms.

3.3 Investment methods and investment objectives

The investment objective of ETF is to replicate the index as much as possible and pursue the minimization of tracking error and deviation. Therefore, the fund contract requires that the fund manager can only invest in index constituent stocks, and the position cannot be less than 95.

OTC index funds do not have such strict requirements.

Subject to the regulation that "the maximum position of open-end funds cannot exceed 95", ETF feeder funds require that the position of index constituent stocks be no less than 90, giving fund managers the right to choose 5 positions.

In order to pursue excess returns, enhanced index funds require that the index component stock position be no less than 80, and the stock position be no less than 90, giving fund managers greater freedom of choice.

2. Practical operations

1. Purchase channels for index funds

The easiest way is to open a stock account and buy ETFs on the market.

The ETF buying and selling process is the same as that of stocks.

First find the trading interface, then enter the code or name of the ETF you want to buy (such as "CSI 300 ETF" or "510300"), and then enter the transaction price and transaction quantity.

The minimum purchase unit of ETF is the same as that of stocks, with a minimum purchase of 1 lot. One lot is 100 shares, and ETF here refers to 100 shares. Taking the screenshot of the market as an example, the minimum purchase price is 471.9 yuan.

If you don’t have a stock account, don’t worry, just buy it directly on the third-party platform.

Take Alipay as an example.

Open Alipay and find the fund option or the search button in the upper right corner of the financial management interface.

Click in and a search box will appear, then enter the fund code or fund abbreviation you want to buy. After finding the target fund, there will be two options below: "fixed investment" and "buy".

Fixed investment means buying at a fixed time. If you only want to buy once, choose buying.

After clicking "Buy", the trading interface will appear. Just enter the purchase amount. Note that the minimum purchase amount is 10 yuan.

2. How to choose index funds?

There are many index funds on the market. In terms of ETFs alone, there are already 358. If you include over-the-counter ones, there are already thousands of index funds. There are so many ETF funds, which one is better?

There are only two criteria for Uncle Net - performance and scale.

Performance depends on how well the index fund fits the index it is tracking. To put it simply, even if an index fund cannot outperform the underlying index, it cannot underperform it.

Before deciding whether to buy an index fund, Uncle Wang will usually look at its historical trends. If it underperforms the underlying index, then Mr. Wang will never buy this index fund.

Take the CSI 300 ETF that Uncle Net focuses on as an example. Since its listing in 2012, the CSI 300 ETF has slightly outperformed the CSI 300 Index on the premise that its trend is basically the same as that of the CSI 300 Index. This is a relatively good situation.

Scale depends on how big the fund is. Size means liquidity. Generally speaking, the larger the size, the better the liquidity of the fund.

Take state-owned enterprise ETFs as an example. The scale is only 13 million yuan, the daily turnover is less than 1 million yuan, and there are basically few people trading.

Then its trend becomes up and down, making it difficult to sell at the market price. Uncle Wang will never touch this kind of ETF.

According to these two rules, Uncle Net has screened some mainstream index funds on the market and classified them according to different investment targets as follows:

2.1 Broad-based index funds

Broad-based index funds are funds that track the broad market index, such as funds that track the Shanghai Stock Exchange 50, CSI 300, CSI 500, and GEM Index.

These market indexes mean the average market return, and buying these index funds means obtaining the average market return.

(1) SSE 50

On-exchange: 510050.SH China AMC SSE 50 ETF (scale 54.431 billion)

Off-exchange: 110003.OF E Fund SSE 50 Index A (scale 23.052 billion)

(2) CSI 300

On the market: 510300.SH Huatai-Berry CSI 300 ETF (scale 48.365 billion)

On-market: 159919.SZ Harvest CSI 300 ETF (scale 22.795 billion)

On-market: 510330.SH ChinaAMC CSI 300 ETF (scale 28.948 billion)

Off-market: 000051.OF ChinaAMC CSI 300 ETF Link A (scale 11.198 billion)

OTC: 100038.OF Wells Fargo CSI 300 Enhanced (6.376 billion)

(3) CSI 500

On-market: 510500.SH Southern CSI 500 ETF (scale 39.177 billion)

Off-market: 000478.OF CCB CSI 500 Index Enhanced A (scale 4.497 billion)

(4) GEM Index

On-market: 159915.SZ E Fund GEM ETF (scale 14.924 billion)

Off-market: 110026.OF E Fund GEM ETF Link A (scale 4.976 billion)

(5) GEM 50

On-market: 159949.SZ Huaan GEM 50 ETF (scale 12.181 billion)

Off-market: 160420. OF Huaan GEM 50 (scale 1.057 billion)

2.2 Industry/Theme Index Fund

In the past few years, the market’s excess returns have basically come from several popular industries such as consumption and technology Internet, except In addition, major financial industries such as military industry, environmental protection, media, banks, and securities have also become popular at some point in time.

In the future, excess market returns will most likely come from these directions.

(1) Big Consumption

On-market: 159928.SZ China Universal CSI Major Consumer ETF (scale 8.489 billion)

Off-market: 000248. OF China Universal CSI Main Consumer ETF Link (scale 5.142 billion)

(2) Medicine

On the market: 159929.SZ China Universal CSI Medical and Health ETF (scale 4.97 billion)

Off-market: 159992.SZ Yinhua CSI Innovative Drug Industry ETF (scale 3.047 billion)

(3) Wine

On-market: 512690. SH Penghua China Securities Wine ETF (scale 4.565 billion)

OTC: 160632.OF Penghua China Securities Wine ETF (scale 5.175 billion)

(4) Technology Internet

On the market: 515000.SH Huabao CSI Technology Leading ETF (scale: 5.885 billion)

On the market: 510050.SH Huaxia CSI 5G Communications Theme ETF (scale: 54.431 billion)

On the market: 512760.SH Cathay CES Semiconductor Chip ETF (scale 11.298 billion)

On the market: 512480.SH Guolian CSI Semiconductor ETF (scale 9.114 billion)

On the market: 515030.SH China Securities New Energy Vehicle ETF (scale: 7.155 billion)

On the market: 513050.SH E Fund CSI Overseas Internet ETF (scale: 19.769 billion)

On-site: 164906.SZ BoComm CSI Overseas China Internet (scale 4.645 billion)

Off-site: 160626.OF Penghua CSI Information Technology (scale 618 million)

(5) Military Industry

On-market: 512660.SH Cathay CSI Military Industry ETF (scale 13.146 billion)

Off-market: 161024.OF Fuguo CSI Military Industry (scale 7.494 billion)

(6) Environmental protection

On-market: 512580.SH GF China Environmental Protection Industry ETF (scale 1.959 billion)

Off-market: 001064.OF GF China Securities Environmental Protection Industry Link A (Scale 1.410 billion)

(7) Media

On the market: 159805.SZ Penghua CSI Media ETF (Scale 205 million)

OTC: 160629.OF Penghua CSI Media (scale 828 million)

(8) Bank

Onsite: 512800.SH Huabao CSI Bank ETF (scale 8.265 billion)

OTC: 001595.OF Tianhong China Securities Bank C (scale 6.121 billion)

OTC: 160631.OF Penghua China Securities Bank (scale 1.499 billion)

(9) Securities

On the market: 512880.SH Cathay CSI Securities Company ETF (scale 32.049 billion)

On the market: 512000.SH Hua Baozhong Securities All-Index Securities ETF (scale 23.849 billion)

On-market: 159993.SZ Penghua Guozheng Securities Leading ETF (scale 1.638 billion)

Off-market: 161720.OF China Merchants Securities Co., Ltd. (scale 3.221 billion)

2.3 Overseas Index Fund

In the past 10 years or so, the US stock market has been bullish, and new economy companies such as Tencent have been listed on the Hong Kong stock market. Domestic investors want to invest in Hong Kong and US stocks, but suffer from lack of suitable investment channels. The overseas index funds that have been born in recent years are a good choice.

(1) Hong Kong stocks

On the market: 159920.SZ China Hang Seng ETF (scale 10.192 billion)

On the market: 510900.SH E Fund Hang Seng H shares ETF (Scale 7.485 billion)

OTC: 000071.OF China Hang Seng ETF connects RMB A (scale 2.439 billion)

OTC: 110031.OF E Fund Hang Seng H Share ETF connects RMB A (Scale: 1.139 billion)

(2) US stocks

On the market: 513100.SH Cathay Nasdaq 100 ETF (Scale: 1.793 billion)

On the market: 513500.SH Boshi S&P 500 ETF (scale 3.425 billion)

OTC: 270042.OF GF Nasdaq 100 Index A RMB (QDII) (scale 3.539 billion)

Onsite Foreign: 040046.OF Huaan Nasdaq 100 RMB (scale 1.972 billion)

2.4 Commodity Index Fund

Domestic commodity index funds are mainly gold index funds.

The gold index fund does not invest in gold stocks, but in gold T&D listed on the Shanghai Financial Exchange. Its rise and fall are mainly affected by the rise and fall of gold prices. Those who want to buy gold for safety can choose lower-cost funds. Gold Index Fund.

On the market: 518880.SH Huaan Yifu Gold ETF (scale 10.853 billion)

On the market: 159934.SZ Yifangda Gold ETF (scale 4.295 billion)

3. How to invest in index funds?

3.1 Risks of investing in index funds

Before talking about how to invest in index funds, Uncle Wang still wants to talk about the risks of investing in index funds.

First of all, although index funds fluctuate less than individual stocks, they will fall sharply or even be cut in half.

The picture shows the trend chart of the CSI 300 Index (blue line), CSI 300 ETF (yellow line) and BOE A (white line) since 2016.

The volatility of individual stocks is significantly higher than that of the index, and the volatility of the CSI 300 ETF is basically the same as that of the CSI 300 Index.

But don’t think that index funds have limited declines because of small fluctuations. Index funds will still fall sharply when encountering extreme market conditions.

For example, in 2015, A-shares fell from 5178 points, and the net value of the CSI 300 ETF also fell from a minimum of 5.077 to 2.588, nearly halving.

Another risk of index funds is the premium rate, which is specifically for ETFs (on-exchange index funds).

ETF has two prices, market transaction price and net value.

Premium rate = (market transaction price - net value) / net value.

The market transaction price is the price we see on the stock software, and the net value is the true price of the fund. However, due to various factors, the two prices are not always the same. In extreme market conditions, the two prices can even differ by more than 20%.

For example, in September last year, the premium rate of the Nasdaq ETF was as high as 19.39, which means you would have lost about 20 if you bought it at that time.

3.2 How to invest in index funds?

There are many ways to invest in index funds, such as fixed investment and trend trading.

Although trend trading weakens the risk of stock selection, it still requires a high level of ability to grasp rules and sector rotation, and is more suitable for investors with more experience.

For investors who are just getting started, it is best to invest mainly in fixed investments. It is simple and easy to learn, and long-term fixed investments can basically make a profit without losing money.

Take the monthly fixed investment in the CSI 300 ETF since September 6, 2016 as an example.

One *** made 61 fixed investments, with an investment of 60,000 yuan. At the end of the period, the assets had become 79,075.22 yuan, and the fixed investment rate of return was 31.79.

Even if you start investing from the highest point of the stock market, you will still make money if you persist all the way. Therefore, here we mainly introduce the fixed investment methods of index funds.

(1) Buying

There are two ways to buy index funds - regular fixed amount and buying more as the price drops.

Periodic quota means investing a fixed amount at the same time. It is simple and easy to learn, and is very suitable for investors who are just getting started. The example we just used is the regular fixed amount buying method.

However, the regular quota has an obvious flaw. When the index falls, it is impossible to lower the average holding cost by adding positions.

Experienced investors will choose to buy more as the index falls. When the index falls, they increase the purchase amount. The harder the fall, the more they buy. In this way, the average holding cost is effectively lowered, in order to obtain higher returns in the future rise.

The difficulty in buying more when prices fall is how to balance the buying rhythm.

For example, if you judge that there will be 10 buying opportunities during the decline, and then allocate funds accordingly, but after 10 purchases, the index falls further, you will be dumbfounded. This method is not suitable for new investors.

(2) Sell

The stock market is rising in a band. If you only know how to buy but not sell, you can only follow the index on a roller coaster back and forth, so those who can sell are the masters.

There are many ways to sell fixed investment funds. Here are a few briefly introduced.

The first is the expected return method.

Before making a fixed investment, first set the expected rate of return of the fixed investment, such as 10 or 20. Once the fixed investment income reaches the expected return, sell decisively.

A bit more complicated, it can be set to the annualized expected rate of return. That is, if you make a fixed investment in one year, you need to get a return of 10%. When you make a fixed investment in the third year, you need a return of 30% before selling. When the fixed investment reaches the 4th year, a profit of 40% is required before selling, and so on.

The second is to observe market sentiment.

There is a characteristic of the stock market. In a bull market, everyone around you is talking about the stock market. In a bear market, people around you are ashamed to talk about the stock market.

You can invest silently, and then choose to leave when everyone around you is talking about the stock market, or when the Internet is full of reports about the bull market.

The third is the grid trading method.

This is more complicated, which is to set the expected return for each fixed investment. For example, if the rate of return for each purchase is set to 10, then the fixed investment at 10 yuan will be sold at 11 yuan, and the fixed investment at 8 yuan will be sold at 8.8 yuan.

Of course, you can also set a higher expected rate of return for the low-price fixed investment amount. For example, if a fixed investment at 8 yuan requires a rate of return of 15, then sell it at 9.2 yuan.

These are just some tips in fixed investment, which will help to increase the income of fixed investment. However, the essence of fixed investment is to insist on regular investment. Once you give up midway, you will definitely fall short. Don’t put the cart before the horse after learning some tricks.