What are the following characteristics of index funds?

The characteristics of several funds are mainly manifested in the following aspects:

1, low cost:

This is the most prominent advantage of index funds. Expenses mainly include management expenses, transaction expenses and sales expenses. Management expenses refer to the expenses incurred by fund managers in investment management; Transaction cost refers to the transaction expenses such as brokerage commission when buying and selling securities. Because index funds adopt holding strategy and do not need to exchange shares frequently, these expenses are far lower than those of actively managed funds, and the difference sometimes reaches 1%-3%. Although this is a small number in absolute value, the long-term cumulative result will have a great impact on the fund's income because of the compound interest effect.

2, decentralized risk prevention:

On the one hand, because index funds are widely diversified, the fluctuation of any stock will not affect the overall performance of index funds, thus diversifying risks. On the other hand, because the indexes pegged by index funds generally have a long tracking history, the risks of index funds can be predicted to some extent.

3. Deferred tax payment:

Because index funds adopt the strategy of buying and holding, the turnover rate of the stocks they hold is very low. Only when a stock is removed from the index, or when investors demand to redeem their investments, index funds will sell their stocks and realize part of the capital gains. In this way, the annual capital gains tax (in developed countries such as the United States, capital gains are within the scope of income tax) is very small. Coupled with the compound interest effect, delaying tax payment will bring many benefits to investors.

4. Less monitoring:

Since operating index funds does not need to take the initiative to make investment decisions, fund managers basically do not need to monitor the performance of funds. The main task of index fund managers is to monitor the changes of corresponding indexes, so as to ensure that the composition of index funds is suitable for them.

Tips: The above information is for reference only, and no suggestions are made.

Response time: 2021-08-11. Please refer to the latest business changes announced by Ping An Bank in official website.

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