【Financial Quantification】What is an ETF fund? What are the characteristics?

1 meaning

ETF (trading-type open-end index fund) is based on the component securities or commodities included in a selected index as investment objects. According to the types and proportions of the securities or commodities that make up the index, complete or sample replication is adopted for passive investment. index funds. ETF not only has all the characteristics of traditional index funds, but also is a purer index fund.

The unique physical purchase and redemption mechanism refers to the fact that investors purchase ETFs from fund management companies and need to exchange for a basket of securities or commodities designated by the ETF; what they get when redeeming is not cash, but a corresponding basket of securities or commodities; if you want to cash out, you need to sell these securities or commodities.

The physical purchase and redemption mechanism is one of the biggest features of ETF, which makes ETF save the link of buying securities or commodities with cash and dealing with redemption and selling securities or commodities. In addition, ETFs have "minimum purchase and redemption shares" regulations. Only investors with funds reaching a certain scale can participate in the physical purchase and redemption of the ETF primary market.

2 transaction mode

3 Features

ETF fund is a kind of exchange traded fund (Exchange Traded Fund), its basic characteristics are as follows:

1. Strong tradability: ETF funds can be traded on stock exchanges, and can be bought and sold like stocks. The trading time is very flexible, and the transaction process is also very simple and convenient.

2. Low investment threshold: The investment threshold of ETF funds is very low, and only a small amount of capital is needed to realize diversified investment in the stock market. At the same time, the cost of ETF funds is generally relatively low.

3. Leveraged trading: Some ETF funds can be used for leveraged trading, that is, investing by borrowing funds. This trading method can increase the profit probability of investment funds, but it is also easy to increase trading risks.

4. Wide range of investment: ETF funds can involve different types of financial assets, including stocks, bonds, commodities, etc., and the investment range is very wide.

5. Strong reproducibility: The investment strategy of ETF funds is generally to passively track a certain index. Therefore, ETF funds are close to the market performance and can obtain the overall market performance.

6. Tax advantage: ETF funds can enjoy a lower capital gains tax rate after the holding period of more than one year.

The investment cost of ETF funds is low, the structure is simple, the transparency is high, and it has a good performance in different types of market environments. For investors with relatively low risk appetite, who are more inclined to low-cost and stable investment.