From: Fund China

Index Fund means in accordance with certain standards for the composition of the index includes the purchase of the securities market of all or part of the permit voucher funds, and its aim is to achieve the same index and the level of return.

For example, the Shanghai Composite Index Fund is the goal of access and the Shanghai Stock Exchange composite index, like the receipts, Shanghai Composite Index Fund in accordance with the composite index cards on the composition and weight of the purchase of the stock index Lane, accordingly, Shanghai Composite Index on the performance of the Fund will be like on the same card composite index fluctuations.

Index Fund most prominent feature is the low-cost and delayed tax, both to the Fund will have a great impact on earnings. Moreover, such an advantage in a longer period of time could be more prominent. In addition, the simplification of investment portfolio fund managers will not make frequent contact with brokers, do not have stock options or the identification of market timing.

Specifically, the index of the main characteristics of the Fund’s performance in the following areas :

1, the low-cost index fund is the most prominent advantage. Costs including management fees, transaction costs and cost of sales in three aspects. Management fees is the fund manager for the investment management costs; transaction costs refers to the sale of the securities broker commission transaction costs. Index funds take hold strategy, often not convertible, which cost far less than actively managed funds, This difference sometimes reaches the 1% -3%, although in absolute terms it is a very small number However, due to the effect of compound interest exists, in a longer period of time since the results of the accumulated fund will have a tremendous impact on earnings.

2, decentralized and guarding against risks hand, due to broad index funds to diversify investment Any individual stock volatility index fund will not have the overall performance impact that will spread the risks. Another aspect, as index funds pegged to the index generally have a longer history of the track, therefore, In a certain extent, the risk index fund is predictable.

3, delayed tax Index Fund adopted a buy and hold strategy, the stock held by the stock exchange rate is very low, Only when a stock removed from the index, or the amount of investor demand, Index Fund will sell the equity and realize some capital gains, so that annual pay the capital gains tax (in the United States and other developed countries, the capital gains tax is derived from the scope of) little, coupled with effects of compound interest, deferred taxes will bring many benefits to investors, particularly in accumulated over the years, This effect will become more prominent.

4, less because of operational monitoring index funds do not have to take the initiative in the investment decision-making, So fund managers do not need to basically fund’s performance is monitored. Index fund managers is the main task of monitoring the corresponding index changes, to ensure that the index fund portfolio with suitable composition.

Copyright Fund China 2009.

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