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The fund industry is also a sector where off-balance-sheet assets far exceed on-balance-sheet assets (currently, its total on-balance-sheet asset scale is about 200 billion yuan, while the asset management scale reaches as high as 25 trillion yuan). Therefore, compared to institutions within the banking and insurance regulatory system, the fund industry is also a light asset industry. The reason we focus on the fund industry is that, under the backdrop of the true asset management era, the fund industry's leading position in valuation, talent development, investment philosophy, major asset allocation, and operational mechanisms is very evident. Its industry status, institutional development, basic operations, and historical context are also concrete manifestations of the operational trajectory of China's capital market. Please note that this article does not involve the private equity investment fund industry.

1. Overall Fund Industry Structure Diagram
   For the convenience of analyzing the fund industry later, we have compiled the following diagram to clarify the entire fund industry's context, mainly explained as follows:

(1) The entire fund industry is mainly divided into two categories: public funds and private funds.#

Of course, this is not an absolute classification standard, especially after the new asset management regulations, the asset management industry is divided into public and private categories (the latter can invest in non-standard assets), but the business conducted by private investment funds is not included in the asset management industry.
(2) Broadly speaking, fund management companies should include 145 public fund management institutions and 79 fund subsidiaries, among which the 145 public fund management institutions also include 130 fund management companies and 15 asset management institutions that have obtained public fund qualifications (such as securities firms, securities asset management, and insurance asset management, etc.).
(3) When discussing the fund industry, it is more often referred to the public fund business, which can be divided into closed-end funds and open-end funds, with the latter further divided into several major categories such as equity funds, bond funds, mixed funds, money market funds, and others.
(4) Of course, we cannot avoid the separate account business within the fund industry, which is fully referred to as specific client asset management business (one-to-one and one-to-many), including both channel-type business and ABS business conducted by fund subsidiaries, as well as social security fund and corporate annuity management business.

2. Analysis of 145 Public Fund Management Institutions#

(1) Types of Institutions:#

130 fund management companies, 7 securities asset management companies, 6 securities firms, 2 insurance asset management companies.
Among the 145 fund management companies, only 130 are pure fund companies (the list released by the CSRC on January 10, 2020, is 128), and another 15 are asset management institutions that have obtained public fund licenses. Among them, Taikang Asset Management and PICC Asset Management are the two insurance asset management companies that have obtained public fund qualifications. Seven securities asset management subsidiaries, including Caitong Securities Asset Management, Zhongtai Asset Management, Bohai Huijin Asset Management, Zhejiang Merchants Asset Management, Huatai Securities Asset Management, Changjiang Asset Management, and Dongzheng Asset Management, have also obtained public fund licenses. In addition, six securities firms, including Dongxing Securities, Beijing Gao Hua, Huarong Securities, Shanxi Securities, Guodu Securities, and Bank of China International Securities, have also obtained public fund licenses.

(2) Shareholder Background:#

66 from securities firms, 24 from trusts, 16 individuals, 15 from banks, and 11 fund companies without controlling shareholders. Among the 145 fund management companies, the majority are from securities firms and trusts, reaching 66 and 24 respectively (a total of 90). It should be noted that the number of securities firms and trust companies is 132 and 68 respectively. In addition to securities firms and trusts, bank-affiliated fund management companies and individual-affiliated fund management companies also reach 15 and 16 respectively (a total of 31).

1. 12 Niche Fund Companies: 6 from insurance, 3 from private equity, 2 from futures, and 1 each from internet and real estate.#

Let's first look at some relatively niche fund management companies.

• (1) The only real estate fund company (i.e., Green Fund, 100% owned by Henan Anrong Real Estate Development), the only internet finance fund company (i.e., Tianhong Fund, 51% owned by Ant Micro Finance and 16.80% owned by Tianjin Trust), and the only two futures fund companies (i.e., Nanhua Fund, 100% owned by Nanhua Futures, and Ruida Fund, 100% owned by Ruida Futures).
• (2) There are also three private equity fund companies, such as Hongyi Investment (Beijing) 100% owned Hongyi Yuanfang Fund, Zhuque Equity Investment Management 65% owned Zhuque Fund, and Motai Mountain Holdings' Baodao Fund.
• (3) Six insurance fund companies include Taiping Fund, 91.50% owned by Taiping Asset Management and 51% owned by Guolian An Fund, Guoshou Anbao Fund, 85.03% owned by China Life Asset Management, Huatai Baoxing Fund, 80% owned by Huatai Insurance Group, Taikang Asset Management, 99% owned by Taikang Insurance Group, and PICC Asset Management, 100% owned by PICC Group.

2. 15 Bank-affiliated Fund Companies: 5 from state-owned banks, 4 from joint-stock banks, 4 from city commercial banks, and 2 from foreign banks.
   Currently, there are 15 banks that have obtained public fund licenses, including five state-owned banks: Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China (only Postal Savings Bank remains). The joint-stock banks include China Merchants Bank, Industrial Bank, Shanghai Pudong Development Bank, and Minsheng Bank, totaling four. The city commercial banks include Beijing Bank, Shanghai Bank, Nanjing Bank, and Ningbo Bank, also totaling four. In addition, two foreign banks, Hang Seng Bank and Yilian Bank, have also obtained public fund licenses.

2. 15 Bank-affiliated Fund Companies: 5 from state-owned banks, 4 from joint-stock banks, 4 from city commercial banks, and 2 from foreign banks.
   Currently, there are 15 banks that have obtained public fund licenses, including five state-owned banks: Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China (only Postal Savings Bank remains). The joint-stock banks include China Merchants Bank, Industrial Bank, Shanghai Pudong Development Bank, and Minsheng Bank, totaling four. The city commercial banks include Beijing Bank, Shanghai Bank, Nanjing Bank, and Ningbo Bank, also totaling four. In addition, two foreign banks, Hang Seng Bank and Yilian Bank, have also obtained public fund licenses.

4. 24 Trust-affiliated Fund Companies#

In fact, trust-affiliated funds not only include these 24 but also some other fund companies in which trust companies hold shares (such as Xinhua Fund, E Fund, etc.). Considering that the essential function of trust companies is investment, it is natural for trust companies to initiate or invest in fund companies as part of their business.

The 24 trust-affiliated fund companies include Taixin Fund of Shandong Guoxin, Taida Hongli Fund of Tianjin TEDA, Tianzhi Fund of Jilin Trust, Ping An Fund of Ping An Trust, Shanghai Guoxin's Shanghai Investment Morgan Fund, Zhonghai Fund of Zhonghai Trust, Citic Trust's Citic Prudential Fund, Zhongrong Trust's Zhongrong Fund, Yimin Fund of Chongqing Guoxin, Yuanxin Yongfeng Fund of Xiamen Guoxin, Guotou Taikang's Guotou Ruijin Fund, Baoying Fund of China Railway Trust, Beixin Ruifeng Fund of Beijing Guoxin, Dacheng Fund of Zhongtai Trust, Harvest Fund of Zhongcheng Trust, Huazhong Fund of Huazhong Trust, Huazhong Yuan Da Fund of China Resources Shen Guotou Trust, and Huacheng Future Fund of Huacheng Trust.

5. 66 Securities-affiliated Fund Companies#

Securities-affiliated public funds remain the largest faction in the fund industry.

• (1) Six securities asset management companies (such as Caitong Securities Asset Management, Huatai Securities Asset Management, Bohai Huijin Asset Management, Zhejiang Merchants Asset Management, Changjiang Asset Management, Dongzheng Asset Management) and five fund companies fully owned by securities firms (such as Xiangcai Securities' Xiangcai Fund, AVIC Securities' AVIC Fund, CICC's CICC Fund, Huarong Securities' Huarong Fund, and Dongfang Fortune Securities' Dongcai Fund, etc.). Dongxing Securities, Huarong Securities, Beijing Gao Hua, Shanxi Securities, Guodu Securities, and Bank of China International also hold public fund licenses.

• (2) The other 49 securities-affiliated public funds are directly or indirectly controlled by securities firms, such as Zhongtai Asset Management and Wanjia Fund (Zhongtai Securities), Shenwan Hongyuan Fund (Shenwan Hongyuan), Xinhua Fund (Hengtai Securities), Western Gain Fund (Western Securities), Penghua Fund (Guoxin Securities), Southern Fund (Huatai Securities), Rongtong Fund (New Era Securities), Changxin Fund (Changjiang Securities), CITIC Jianxin Fund (CITIC Jianxin Securities), Zhongyou Fund (Shouhua Securities), Xingyin Fund (Huafu Securities), Xingquan Fund (Xingye Securities), E Fund and Guangfa Fund (Guangfa Securities), Xinda Australia Fund (Xinda Securities), Changsheng Fund (Guoyuan Securities), Changcheng Fund (Changcheng Securities), Yinhua Fund (Southwest Securities), Guangda Baodexin Fund (Guangda Securities), Fuanda Fund (Nanjing Securities), Haifutong Fund (Haitong Securities), Boshi Fund (CITIC Securities), and Huaxia Fund (CITIC Securities), etc.

6. 11 Other Faction Fund Companies#

In addition, there are 11 other faction fund companies, most of which are owned by financial holding companies, such as Hongtu Innovation Fund (100% owned by Shenzhen Innovation Investment Fund), Tsinghua Holdings' Nord Fund, New 沃 Capital Holdings' New 沃 Fund, and Jiayin Investment Holdings' Guotai Fund, etc.

(3) Regional Distribution: Shanghai, Shenzhen, and Beijing have a total of 120 companies, with Guangdong and Zhejiang having 5 each, Fujian 4, Tibet 3, Chongqing 2, and 1 each in 6 provinces.
The distribution of 145 fund companies is relatively concentrated, and most are located in the same place as their parent companies. Currently, Shanghai, Shenzhen, and Beijing have 65, 32, and 23 fund companies, respectively, totaling 120. Obviously, the excessive concentration in these three places has little discussion significance, and we will focus on other regions.

• 1. Six provinces each have one. They are Baoding in Hebei (i.e., Huarong Fund, 100% owned by Huarong Securities), Taiyuan in Shanxi (i.e., Shanxi Securities, which has a public fund license); Tianjin (i.e., Tianhong Fund, the largest money market fund); Urumqi in Xinjiang (i.e., Xinjiang Qianhai United Fund, 30% owned by Jushenghua and 25% owned by ShenYue Holdings), Xi'an in Shaanxi (i.e., Zhuque Fund), and Nanning in Guangxi (i.e., Guohai Franklin Fund, 51% owned by Guohai Securities).
• 2. Chongqing has 2, both of which are trust-affiliated, namely Xinhua Fund (Xinhua Trust) and Yimin Fund (Chongqing International Trust).
• 3. Fujian has 4, including 2 in Fuzhou (i.e., Xingye Fund, 90% owned by Industrial Bank, and Huafu Securities, 76% owned by Huafu Fund) and 2 in Xiamen (i.e., Yuanxin Yongfeng Fund, 51% owned by Xiamen International Trust, and Ruida Fund, 100% owned by Ruida Futures).
• 4. Tibet has 3, namely Hongde Fund, Huisheng Fund, and Xizang Dongcai Fund (100% owned by Dongfang Fortune), with the first two being individual-affiliated fund companies.
• 5. Guangdong, excluding Shenzhen, has 5, including 2 in Guangzhou (i.e., Jinying Fund, 66.19% owned by Dongxu Group, and Furong Fund, 50% owned by Guangzhou Science and Technology Financial Innovation Investment) and 3 in Zhuhai (i.e., E Fund, Guangfa Fund, and Zhongke Wotu Fund).
• 6. Zhejiang has 5, including 3 in Hangzhou (Zhejiang Merchants Fund, Zhejiang Merchants Asset Management, and Caitong Securities Zhejiang Merchants) and 1 each in Jinhua (i.e., Nanhua Fund, 100% owned by Nanhua Futures) and Ningbo (i.e., Yongying Fund, 71.49% owned by Ningbo Bank).

(4) Establishment Time: Mainly concentrated in two periods: 2003-2004 and 2013-2018, with financial system funds dominating before 2015.#

The evolution trend of the number of public fund management companies approved over the years can better grasp the policy orientation.

• 1. Overall, there have been two periods in history when the number of fund companies approved was relatively high and concentrated, such as a total of 23 approved from 2003 to 2004 and a total of 66 approved from 2013 to 2018, totaling 89 companies.
• 2. Initially, China's fund companies were mainly from trust and securities firms, until the banking and insurance fund companies officially emerged in 2002 and 2003, respectively.
• 3. Personal, private equity, real estate, and internet fund companies in China all emerged after 2015, as fund companies before 2015 were mainly within the financial system.

(5) Registered Capital: The top 10 fund companies are all from securities or banking sectors (the top 6 are from securities sectors).#

1. From the registered capital situation of the 145 fund companies, currently, there are 6 fund companies with registered capital exceeding 2 billion yuan, all of which are securities firms that have obtained public fund licenses, strictly speaking, they are not real fund companies. These 6 are Huaron Securities, Guodu Securities, Shanxi Securities, Dongxing Securities, Huatai Asset Management, and Bank of China International Securities.

2. The fund companies ranked 7th to 10th in registered capital are all from the banking sector, namely Puyin Ansheng Fund, Agricultural Bank of China Fund, Xinyuan Fund, and China Merchants Fund. After all, banks are the biggest financial backers in the financial system. In terms of the distribution of registered capital, 25 fund companies have registered capital of 100 million yuan, 124 companies have registered capital below 1 billion yuan, and 114 companies have registered capital below 500 million yuan, while 14 fund companies have registered capital between 1 billion and 2 billion yuan.

3. Data Sorting and Analysis of the Fund Industry#

For the fund industry, since the business is mainly entrusted (i.e., off-balance-sheet), discussing its on-balance-sheet business is not very meaningful. It should be noted that since the scale data of corporate annuities and social security funds in the second half of 2019 has not yet been published, to avoid inconsistencies in data comparison, we will assume the scale of social security funds and corporate annuities in the second half of 2019 to be 2.05 trillion yuan (1.90 trillion yuan in the first quarter of 2019).
(1) Asset Management Scale: Driven by separate account business before 2016, public funds slowly rose after 2016, currently stabilizing around 25 trillion yuan.
The business of fund management companies is mainly divided into two parts,

• One is public fund business,

• The other is separate account business (mainly conducted by fund subsidiaries).

• From the scale evolution trend, before the fourth quarter of 2016, separate account business held an absolute dominant position in the fund industry, with its scale rapidly increasing from less than 1 trillion yuan in 2012 to 17.39 trillion yuan in the third quarter of 2016 (during the same period, the scale of public funds was only 8.83 trillion yuan), accounting for two-thirds of the entire fund industry's asset management scale. Since the fourth quarter of 2016, with the tightening of regulatory policies, separate account business has shown a trend of shrinkage, with its scale compressed to about 11 trillion yuan currently, a reduction of nearly 6.50 trillion yuan over three years, while during this three-year period, the scale of public funds has risen to nearly 14 trillion yuan (a net increase of 5 trillion yuan). Therefore, we see that after "one increase and one compression," the asset management scale of the fund industry has not changed much, remaining stable at around 25 trillion yuan.

(2) Public Funds: Mainly open-ended, money market funds returning to normal.
Against the backdrop of the declining trend of separate account asset scale, public funds are gradually becoming the main component of the fund industry. Public funds are divided into closed-end and open-end funds, while open-end funds can be further divided into equity funds, bond funds, mixed funds, money market funds, and QDII funds.

• 1. Closed-end funds have slowly grown to the current 1.22 trillion, while open-end fund scale has hovered in the range of 12-13 trillion for over two years.
     From the composition perspective, closed-end funds account for a very small proportion of the public fund industry, less than 10%, but their scale has been slowly growing, currently increasing from less than 150 billion yuan in 2014 to 1.22 trillion yuan in the third quarter of 2019. In contrast, open-end fund scale has always accounted for over 90% of the public fund industry, currently approaching 92%. From a trend perspective, since the second half of 2018, the scale of open-end funds has remained in the range of 12-13 trillion yuan, with no significant growth.
• 2. After the explosive growth of money market funds from 2015 to 2018, money market funds and non-money market funds have returned to balance after 2015.
     If we divide public funds into money market and non-money market categories, we can find that these two categories are almost evenly split in scale. At the end of 2014, the scale of money market and non-money market funds was 2.09 trillion and 2.45 trillion respectively (the latter being higher). By September 2018, they had increased to 8.26 trillion and 5.10 trillion respectively. During this nearly five-year period, driven by internet funds, the scale of money market funds increased significantly by 6.17 trillion (non-money market funds only increased by 2.65 trillion). In the fourth quarter of 2018, money market funds faced strict regulation, and their scale began to shrink, currently down by 1.18 trillion to 7.08 trillion, while non-money market funds continued to maintain steady growth to 6.71 trillion, returning to balance at around 50% for each public fund.
• 3. Equity, mixed, and bond funds account for less than 50% of open-end fund scale.
     Among the five classifications of open-end funds, money market funds account for as high as 55% (which once reached over 65% in 2018), meaning that equity funds, mixed funds, and bond funds contribute less than 50% to open-end funds. As of the third quarter of 2019, the scale of equity funds, mixed funds, and bond funds was only 1.16 trillion, 1.71 trillion, and 2.53 trillion respectively, totaling 5.40 trillion. It should be noted that the total market value of A-shares currently exceeds 35 trillion, indicating that the public fund industry contributes less than 1% of the total A-share market value.

(3) Separate Account Business: Fund management companies and subsidiaries contribute 60% and 40% respectively, currently between 10-11 trillion.
The so-called separate account business refers to asset management business that raises funds from specific clients or accepts entrusted property from specific clients. The regulatory documents for this business originated from the "Pilot Measures for Specific Client Asset Management Business of Fund Management Companies" issued by the CSRC on September 26, 2012 (CSRC Order No. 83).

• 1. Separate account business can be divided into specific asset management business for a single client (one-to-one) and specific asset management business for multiple specific clients (one-to-many), and fund management companies can carry out separate account business by establishing specialized business departments or subsidiaries (i.e., fund subsidiaries).
• 2. Currently, the scale of separate account assets has reached between 10-11 trillion, with fund management companies' separate account scale accounting for 60% (remaining stable between 6-6.50 trillion since the third quarter of 2016) and fund subsidiaries' separate account scale accounting for 40% (currently about 4 trillion).
• 3. After the relaxation of separate account business in 2012, the separate account business of fund subsidiaries rapidly grew, reaching 11.15 trillion by the end of September 2016, and then quickly shrank under high-pressure policies, currently down to about 4 trillion (4.40 trillion in the third quarter of 2019). It should be noted that during the period from 2012 to 2016, the separate account business of fund subsidiaries was mainly channel-type business, which is similar to the functions of securities asset management subsidiaries.
• 4. Currently, the scale of social security funds and corporate annuities managed by fund management companies is about 2 trillion.

(4) Sales Channels: Direct sales 60%, bank agency sales 20%, securities firms 10%, others 10%.

The sales channels for fund products are mainly direct sales, bank agency sales, securities firm agency sales, and other channels (such as the internet, etc.).

During the stock market bull run from 2005 to 2007, the proportion of bank agency sales rapidly increased from over 30% to nearly 80% in 2007, contributing 80% of the sales channels for fund management companies. However, after the stock market entered a bear market in 2008, the desire of commercial banks for agency sales continuously decreased, severely impacting the fund industry, forcing fund management companies to complete sales through direct sales. By 2016, the direct sales proportion of fund management companies reached over 80%, forming a typical self-managed and self-sold model. After 2017, the motivation for bank agency sales increased, and the proportion of direct sales correspondingly decreased, while the securities channel remained stable at around 10%.

4. Ranking of 140 Public Fund Management Institutions by Management Scale#

Generally, when ranking public fund management institutions by scale, money market funds are excluded. Here we use three criteria: ranking by money market fund scale, ranking by non-money market fund scale, and ranking by total management scale.

(1) From the perspective of non-money market fund scale, there are 23 institutions with management scales exceeding 100 billion yuan, with the top five being E Fund, Boshi Fund, Huaxia Fund, Southern Fund, and the 6th to 10th ranked institutions being Bank of China Fund, Harvest Fund, Guangfa Fund, Fuquan Fund, and China Merchants Fund, while the city commercial bank's Yongying Fund has a management scale of 1025.70 billion yuan (ranking 23rd).

(2) From the perspective of money market fund scale, Tianhong Fund ranks first with 1.17 trillion (its non-money market fund scale is 620 billion), far exceeding the second-ranked Jianxin Fund (430.39 billion), with 21 institutions managing money market fund scales exceeding 100 billion. The 3rd to 10th ranked institutions are E Fund, ICBC Credit Suisse Fund, Southern Fund, Boshi Fund, Harvest Fund, Huaxia Fund, Guangfa Fund, and Penghua Fund.

(3) From the perspective of overall management scale, Tianhong Fund ranks first with 1.23 trillion due to its high money market fund scale, with 37 institutions managing scales exceeding 100 billion. The 2nd to 10th ranked institutions are E Fund, Boshi Fund, Southern Fund, Jianxin Fund, Harvest Fund, Harvest Fund, ICBC Credit Suisse Fund, Huaxia Fund, and Guangfa Fund.

5. Brief Review of Major Events in the Fund Industry

The fund industry has gone through more than 20 years and, like other financial industries, has a history of frequent turbulence.

(1) Before November 1997, when the "Interim Measures for the Administration of Securities Investment Funds" was released: The Old Fund Era.
Funds themselves are a means of raising capital, which is also why China decided to develop the fund industry. With the formal release of the "Interim Measures for the Administration of Securities Investment Funds" in November 1997 as the standard, the market usually refers to the funds before this as old funds and the funds after a series of regulations as new funds. It can be said that before 1997, China's fund industry was in a stage of continuous exploration, where many things were not very standardized (such as multi-head management of issuance and approval, and many investment restrictions, etc.), but it laid the foundation and provided experience for the further development of the fund industry after 1997. During this period, in addition to old funds, there were also beneficiary certificates, combination certificates, and other fund-like securities.

1. In August 1991 and October 1992, China's first unapproved fund (i.e., the Zhuxin Fund initiated by Zhuhai International Trust Investment Company) and fund company (Shenzhen Investment Fund Company) were established one after another, and subsequently, investment funds were established across the country, forming a typical 92 fund phenomenon (1992 was the year with the most investment funds established from 1991 to 1998, reaching as high as 57).

2. In October 1992, the State Council Securities Commission (with Vice Premier ZHJ concurrently serving as the director) and the China Securities Regulatory Commission (with Liu Hongru concurrently serving as the chairman) were established simultaneously, and a series of regulatory documents for the fund industry began to enter the drafting agenda.

3. In November 1992, the Zibo Fund (a company-type closed-end investment fund) and the Zibo Township Enterprise Investment Fund Management Company (initiated by China Rural Trust Company, Zibo Trust Company, Bank of Communications Zibo Operation, Shandong Securities Company, and Industrial Bank Shandong Trust) were approved for establishment, marking the first fund and fund company approved by the central bank in China.

4. In December 1992, the State Council issued the "Notice on Further Strengthening the Macro Management of the Securities Market," stipulating that the central bank is responsible for the approval and management of securities institutions, approving investment fund securities and financial institution bonds (including trust beneficiary bonds).

5. In May 1993, the central bank issued the "Emergency Notice on Immediately Stopping Irregular Issuance of Investment Funds and Trust Beneficiary Bonds," and on July 5 of the same year, the National Financial Work Conference was held, clarifying the need to rectify the financial industry.

6. In October 1994, leaders of the State Council Securities Commission pointed out four major problems in China's fund industry:
   (1) Strong arbitrariness in establishing funds;
   (2) Lack of qualified management talent;
   (3) Non-standard fund management;
   (4) Fund participants lack sufficient understanding of the market. The chaos during this period was reflected in asset allocation, as the funds established at that time acted as shadow banks, with a low proportion of investments in stocks, mostly directed towards real industries.

7. In October 1996, the CSRC initiated the preparation of the Fund Department, and in October 1997, it officially decided to establish it, clearly stating that it would pilot the establishment of new fund management companies and issue fund products in the spring of 1998.

8. In November 1997, the State Council Securities Commission issued the "Interim Measures for the Administration of Securities Investment Funds," clarifying the CSRC as the regulatory authority for securities investment funds (the central bank officially withdrew from management). This was also a significant measure and landmark event to prevent and resolve financial risks against the backdrop of the financial crisis. Subsequently, the regulatory responsibilities for various funds, such as private securities investment funds, industrial funds, venture capital funds, etc., were also transferred to the CSRC.

9. In December 1997, the CSRC issued a series of documents, such as the "Notice on Issues Related to the Application for Establishing Fund Management Companies," the "Notice on Issues Related to the Application for Establishing Securities Investment Funds," and four implementation guidelines for the "Interim Measures for the Administration of Securities Investment Funds."

10. In December 1997, the Central Committee of the Communist Party of China and the State Council issued the "Notice on Deepening Financial Reform, Rectifying Financial Order, Preventing and Resolving Financial Risks," clarifying the content of abolishing the central bank's provincial branches, establishing cross-regional branches, changing the mixed operation model of the financial industry, and rectifying financial order (including cleaning up and rectifying old funds).

(2) The Closed-End Fund Era from 1998 to 2000: The Pilot Launch of Fund Management Companies and Fund Issuance#

After 1998, China's fund management companies and funds officially began pilot programs. At the same time, the period from 1998 to 2000 was also a period of rectification in China's financial industry, and the old funds with a series of problems did not fare well during this period, mostly ending in liquidation.

1. In 1998, the first batch of six fund management companies, including Guotai, Southern, Huaxia, Huazhong, Boshi, and Penghua, were officially established and issued six fund products (with a total scale of 12 billion yuan). From March to July of that year, the five major banks, including ICBC, CCB, ABC, BOC, and Bank of Communications, obtained fund custody qualifications.

2. In August 1998, the Ministry of Finance and the State Administration of Taxation jointly issued the "Notice on Tax Issues Related to Securities Investment Funds," and the CSRC issued the "Notice on Issues Related to the Allocation of New Shares by Securities Investment Funds."

3. In August 1999, the central bank issued the "Management Regulations for Fund Management Companies Entering the Interbank Market," allowing qualified fund companies to enter the interbank market.

4. In October 1999, the CSRC and the China Insurance Regulatory Commission simultaneously announced that insurance funds could enter the securities market by purchasing securities investment funds.

5. In 2001, the Ministry of Finance and the former Ministry of Labor and Social Security jointly issued the "Interim Measures for the Investment Management of the National Social Security Fund," clarifying that approved fund management companies and other professional investment management institutions could become managers of social security fund investments, but the proportion of social security fund investments in funds and stocks could not exceed 40%.

(3) The Stumbling Block from 2000 to 2001: The Pilot of Open-End Funds, Fund Scandals, and the "Good Person Raise Hand" System

1. In May 2000, then CSRC Chairman Zhou Xiaochuan clearly stated at the "International Seminar on Fund Development" that he would actively promote open-end funds. On October 8 of the same year, the "Pilot Measures for Open-End Securities Investment Funds" was officially released.

2. In October 2000, the magazine "Finance" published an article titled "Fund Scandals—Analysis of Research Reports on Fund Behavior," directly pointing out the chaos in China's fund industry (such as creating false trading volumes, manipulating the market, and excessive speculation by funds). Subsequently, the top ten fund management companies responded, and renowned economist Wu Jinglian stated in an interview with CCTV's "Economic Half Hour" that "law enforcement and regulatory agencies must take action," leading to ongoing debates. Notably, in January 2001, Wu Jinglian criticized the stock market and the current state of Chinese stocks in another interview, stating that the stock market was worse than a casino, sparking a major debate about the Chinese stock market. It should be noted that Mr. Hong Lei, who currently serves as the president of the China Securities Association, was also implicated in this fund scandal and was later transferred to the CSRC's Fund Supervision Department.

3. In January 2001, the CSRC issued the "Notice on Improving the Selection System for Fund Company Directors," introducing the independent director system. At the same time, the Fund Department also issued the "Opinions on Fund Management Companies Conducting External Cooperation."

4. In March 2001, Huazhong Fund was officially approved to become the first pilot company to issue and manage open-end funds (officially issued in September), and the CSRC released an inspection report on the top ten domestic fund management companies.

5. In May 2001, the CSRC issued the "Notice on Several Issues Related to the Application for Establishing Fund Management Companies," clarifying that, apart from securities firms and trusts, other institutions with good market reputation and standardized operations could also initiate the establishment of fund management companies, a system known as the "Good Person Raise Hand" system.

(4) The Era of Major Innovations from 2001 to 2004: The Passage of the Fund Law, Joint Venture Pilot Programs, QFII Implementation, Social Security Fund Market Entry, and the Emergence of Money Market Funds, Umbrella Funds, Hedge Funds, ETFs, and LOFs.
After China joined the WTO in 2001, the fund industry also underwent corresponding changes, with a series of major measures and product innovations continuously emerging.

1. On October 31, 2001, Huazhong Fund and Morgan Stanley Fund officially established a joint working group in Shanghai to prepare for the establishment of a Sino-foreign joint venture fund management company.

2. According to WTO agreements, foreign institutions establishing joint ventures to engage in securities investment fund management in mainland China are limited to a maximum of 33% (after three years, the foreign shareholding limit will be increased to 49%). Against this backdrop, in June 2002, the "Rules for the Establishment of Foreign-Invested Fund Management Companies" and the "Rules for the Establishment of Foreign-Invested Securities Companies" were officially released. In December of the same year, Guotai Junan and Germany's Allianz Group jointly established Guolian An Fund Management Company, becoming the first joint venture fund company approved for establishment. In December of the same year, China Merchants Securities and a Dutch investment company jointly established China Merchants Fund, becoming the first joint venture fund company approved for operation. From 2002 to 2004, a total of 12 joint venture funds were established, such as Huabao Xingye Fund, Guolian An Fund, Haifutong Fund, Fuquan Fund, and Xiangcai Hefeng Fund.

3. In November 2002, the CSRC and the central bank jointly issued the "Interim Measures for the Management of Qualified Foreign Institutional Investors' Domestic Securities Investment," and the State Administration of Foreign Exchange also issued the "Interim Regulations on the Foreign Exchange Management of Qualified Foreign Institutional Investors' Domestic Securities Investment." Subsequently, the Shanghai and Shenzhen Stock Exchanges released the "Implementation Rules for Securities Trading by Qualified Foreign Institutional Investors" on December 1. In May 2003, UBS and Nomura Securities became the first batch of approved foreign institutions, followed by several foreign institutions obtaining QFII qualifications, marking the official implementation of QFII.

4. In December 2002, Southern, Boshi, Huaxia, Penghua, Changsheng, and Harvest Fund Management Companies became the first batch of national social security fund investment managers, marking the entry of social security funds into the market. In October 2003, after four years of drafting since the establishment of the drafting group in March 1999, the "Fund Law" was passed, replacing the "Interim Measures for the Administration of Securities Investment Funds." In August 2004, the CSRC and the central bank jointly issued the "Interim Regulations on the Management of Money Market Funds," marking the official emergence of money market funds. It should be noted that during the period from 2002 to 2004, various funds such as the Xiangcai Hefeng Fund (now Taida Hongli Fund) initiated by Xiangcai Hefeng Fund in February 2003, the Southern Hedge Fund (which adopts a capital preservation strategy) initiated by Southern Fund in May 2003, the Shanghai Stock Exchange 50 ETF (index fund) in November 2004, and the first LOF (listed open-end fund) in December 2004 were also established.

(5) The Historical Cycle from 2004 to 2007: The Pilot of Bank-affiliated Funds, the Launch of QDII, the Entry of Corporate Annuities into the Market, and the Rectification of the Fund Industry.#

As we previously analyzed the securities industry, we have clearly pointed out that this period was a regulatory adjustment period for the securities industry, and it was also a year of bull markets for Chinese stocks, with the fund industry emerging from the Chinese capital market facing the same market environment. In particular, driven by the stock reform policy, both the stock market and funds entered a crazy bull market phase.

• 1. In September 2004, the CSRC issued the "Management Measures for Securities Investment Fund Management Companies" and in February 2015, the central bank, the banking regulatory commission, and the CSRC jointly issued the "Pilot Management Measures for Commercial Banks to Establish Fund Management Companies," marking the official establishment of bank-affiliated fund management companies. In April of the same year, the central bank announced that ICBC, CCB, and BOC would become the first pilot banks.
• 2. In March 2005, the CSRC issued the "Notice on Issues Related to Investment in Money Market Funds," addressing issues such as repurchase and blind comparison of yields, and artificially lowering the true duration of investment portfolios, regulating the money market fund industry.
• 3. In February 2005, the former Ministry of Labor and Social Security issued the "Interim Measures for the Qualification Recognition of Corporate Annuity Fund Management Institutions," marking the official entry of corporate annuities into the market, just like social security funds.
• 4. In June 2006, the CSRC held a QDII product review meeting, and in August of the same year, Huazhong Fund became the first fund management company officially approved to launch the QDII pilot.
• 5. In December 2006, the CSRC issued the "Notice on Implementing the Spirit of the 31st Fund Industry Joint Conference, Strengthening Risk Prevention, and Promoting the Healthy Development of the Fund Industry," directly addressing the chaos in the fund industry, leading to a slowdown in fund product approvals.
• 6. In June 2007, the CSRC issued the "Trial Measures for the Management of Qualified Domestic Institutional Investors' Overseas Securities Investment."
• 7. In November 2007, the CSRC issued the "Notice on Further Improving Risk Management in the Fund Industry," implementing strict rectification of the fund industry. It is particularly noteworthy that the mouse warehouse incident in 2007 led to the inclusion of "using insider information obtained through job convenience to engage in related transactions" into criminal law when the National People's Congress passed the "Criminal Law Amendment (VII)" in February 2009.

(6) The Era of Relaxed Regulation from 2008 to 2012: The Establishment of the China Securities Association, the Emergence of Fund Subsidiaries and Separate Account Management, and the Formation of the Money Market "T+0" Mechanism.#

• 1. In January 2008, the CSRC issued the "Pilot Measures for the Specific Client Asset Management Business of Fund Management Companies," marking the beginning of the separate account management business for fund companies.
• 2. In April 2008, the CSRC issued the "Regulations on Fund Management Companies Establishing Institutions in Hong Kong," and many fund companies began to open branches in Hong Kong.
• 3. In December 2008, the CSRC issued the "Encouragement Measures for Innovation in Securities Investment Fund Products."
• 4. In May 2009, the CSRC standardized the specific multiple client asset management business conducted by fund management companies.
• 5. In June 2009, the CSRC issued the "Review Guidelines for Trading Open-End Index Securities Investment Funds (ETF) and Linked Funds" to fund companies and custodial banks.
• 6. In November 2009, the CSRC issued the "Interim Measures for the Management of Securities Investment Fund Evaluation Business."
• 7. In June 2011, the CSRC issued the "Revised Management Measures for Securities Investment Fund Sales," clarifying the relevant matters for independent sales institutions.
• 8. In August 2011, the CSRC issued the "Pilot Measures for the Specific Client Asset Management Business of Fund Management Companies," and in September 2012, the CSRC revised the pilot measures. In October of the same year, the CSRC issued the "Interim Regulations on the Management of Subsidiaries of Fund Management Companies," marking the official emergence of fund subsidiaries.
• 9. In December 2011, the CSRC, the central bank, and the State Administration of Foreign Exchange jointly issued the RQFII pilot measures, opening the door for overseas RMB investments in the domestic securities market.
• 10. In June 2012, the CSRC issued the "Notice on Issues Related to the Establishment of Initiating Funds" and the "Explanation on Issues Related to the Establishment of Initiating Funds," marking the official emergence of initiating funds.
• 11. In June 2012, the China Securities Association was officially established. In October 2012, Huatai Fund was the first in the industry to launch the "T+0" redemption mechanism for money market funds, which also led to six years of craziness for money market funds. In December 2012, the "Notice on Deepening the Reform of the Fund Review System" was officially released, proposing for the first time to "encourage the establishment of a fund exit mechanism."

(7) The Transition Era from 2013 to 2017: Pseudo Asset Management and True Asset Management: The Launch of Yu'ebao, Shanghai-Hong Kong Stock Connect Funds, Capital Preservation Funds, and Segmented Funds.#

This period was previously referred to as the era of large asset management, but in reality, it was the era of pseudo asset management, while it was also a period of rapid development for fund subsidiaries. T+0 money market funds, capital preservation funds, segmented funds, etc., also experienced rapid development during this period. Of course, the positive aspects of Shanghai-Hong Kong Stock Connect funds and mutual recognition of Hong Kong and mainland funds were also reflected. It should be noted that during this period, especially starting in 2016, relevant departments of the regulatory system had already begun preparing for the arrival of the true asset management era and issued a series of policy documents.

1. In June 2013, the revised "Fund Law" and the "Interim Regulations on Asset Management Institutions Conducting Public Securities Investment Fund Management Business" were officially implemented.

2. In June 2013, Yu'ebao was officially launched, connecting with Tianhong Fund, leading to the Taobao fund store becoming the mainstream of the fund industry for the next three years.

3. In September 2013, Dongzheng Asset Management became the first securities firm to obtain public fund management qualifications.

4. In December 2013, the State Council issued the "Reply on Issues Related to the Management of Publicly Raised Funds by Fund Management Companies," clarifying that natural persons could initiate the establishment of securities investment fund management companies.

5. In April 2014, the first public fund equity incentive was approved.

6. In April 2014, the CSRC issued the "Notice on Further Strengthening Risk Management for Fund Management Companies and Their Subsidiaries Engaging in Specific Client Asset Management Business," regulating channel business (such as filing and transparency of drawer agreements), strengthening supervision of fund subsidiaries' business.

7. In September 2014, Harvest Fund launched the first equity investment fund participating in state-owned enterprise mixed reform, namely the Harvest Yuanhe Direct Investment Closed Mixed Fund.

8. In June 2014, the CSRC issued the "Opinions on Vigorously Promoting Innovation and Development in the Securities Investment Fund Industry."

9. In December 2014, the first three Shanghai-Hong Kong Stock Connect funds were simultaneously issued (i.e., Southern Hang Seng Index ETF, Huaxia Shanghai-Hong Kong Stock Connect Hang Seng ETF, and linked funds).

10. In February 2015, the China Securities Association initiated the demand sorting and process design work for the comprehensive reporting platform for asset management business.

11. In May 2015, the China and Hong Kong Securities Regulatory Commissions jointly announced the formal signing of the "Supervision Cooperation Memorandum" regarding the mutual recognition arrangement for funds between Hong Kong and mainland China, and released supporting documents for the "Interim Regulations on Mutual Recognition of Hong Kong Funds," allowing mutual sales of funds between Hong Kong and mainland China. In December of the same year, three Hong Kong mutual recognition funds were approved.

12. In November 2016, the Shanghai and Shenzhen Stock Exchanges issued the "Guidelines for the Management of Segmented Fund Business."

13. In December 2016, the CSRC issued the "Interim Regulations on Risk Control Indicators for Subsidiaries of Fund Management Companies Engaging in Specific Client Asset Management."

14. In January 2017, the Ministry of Finance and the State Administration of Taxation issued the "Supplementary Notice on the VAT Policy for Asset Management Products."

15. In February 2017, the CSRC issued the "Guiding Opinions on Hedge Strategy Funds," requiring the name "Capital Preservation Fund" to be adjusted to "Hedge Strategy Fund."

16. In September 2017, the CSRC issued the "Regulations on Liquidity Risk Management for Publicly Raised Open-End Securities Investment Funds."

(8) The True Asset Management Era After 2018: The Basic Operating Rules of the Large Asset Management Industry Tend to Unify, and the Fund Industry is Relatively Proactive.#

The asset management new regulations draft for public consultation in November 2017 and the formal draft in April 2018 announced the death penalty for capital preservation funds, hedge strategy funds, and public segmented funds, while the fund subsidiary business that had developed crazily for five years was also significantly suppressed. At the same time, money market funds began to face stricter regulation, and the entire large asset management industry was tending towards unification in basic operating rules, while the fund industry, which was ahead of its time, had become relatively proactive in the large asset management industry, especially in terms of valuation, talent cultivation, and introduction.

① Name
Just like a Chinese person's name is surname + given name, a fund's name is also not casually chosen—

Surname (fund company) + name (investment direction or characteristics) + type (fund type).

Choosing a fund is like choosing a person; each fund has its own resume. Understanding the resume allows you to transform into an HR, clarify standards, filter in 10 seconds, and select your preferred "candidate fund." Next, let's use Tiantian Fund as a template to see how your fund introduces itself.

② Current Value#

The most prominent position is, of course, enlarged and bolded for the price. The adjacent rise and fall indicate how much it has risen or fallen today compared to yesterday. Typically, bond funds, stock funds, and mixed funds display the latest net value, which is today's price. Money market funds, due to their relative stability, can display "seven-day annualized" or "earnings per ten thousand." However, regardless of how it is displayed, it is not very valuable for us in selecting funds.

③ Positioning Labels#

To help you quickly identify the fund's identity, key positions should also be labeled—fund type, risk level, various ratings, historical rankings, etc. Various well-known terms will not be lacking here.

The key point is, don't you want to see how much you can earn from buying funds? Although the future is uncertain, here we honestly present the past, using a line chart + detailed list in combination for clarity. The trend chart "last month" shows the rise and fall, allowing you to judge the fund's character, whether aggressive or relatively stable; extending to "last 5 years," you can see if it can outperform the average of its peers and the CSI 300. Supporting tables show the rankings among peers, extending to 3-5 years, allowing you to know its ranking and whether it consistently ranks among the best.#

⑤ Risk Fluctuation
In the world of fame and fortune, changes are constant; without experiencing fluctuations, how can one earn returns? This section looks at "maximum drawdown," i.e., the extent of decline. The larger the drawdown, the more adventurous it is, but the potential losses you face may also be greater, as risk is always accompanied by returns.

⑥ Time to Start
Now that you buy, when does it start working (confirming shares)? When will it calculate how much profit you have made (viewing gains and losses)? A timeline clarifies this.

⑦ Business Field
This is also a key area for assessing a fund, reflecting its professional background. What type of fund do you want to buy? Look at the asset allocation ratio; it is more reliable than just looking at the name. For example, this one claims to be a mixed fund, but if the stock proportion exceeds 80%, it is undoubtedly a typical stock fund, and the risk is naturally higher. Looking at the industries and heavily held stocks reveals its main business and whether it aligns with your recent "job" needs.

⑧ Business Scale
Professionalism can often be gauged by scale. Earning a few hundred yuan in returns while discussing business worth billions is what funds do. However, a larger scale is not always better; over 10 billion, the fund manager may not have enough energy to manage it, and adjustments become less flexible. If the scale is too small, falling below 50 million for 60 consecutive working days can lead to passive adjustments and even liquidation risks; thus, a safe boundary is above 100 million. Generally, funds in the range of 2.5-5 billion are preferred, but there are also excellent large caps exceeding 5 billion.

⑨ Work Experience
A mature and stable professional typically requires at least 5 years of deep experience in a certain industry, and the same applies to funds. From the 20-year development of funds in China, a fund established for over 10 years is considered an "old fund"; bond funds, with an average age of 3 years, are also considered veterans if they have been around for over 5 years, having traversed complete bull and bear cycles.

⑩ Behind-the-Scenes Leader#

Every actively managed fund has a quietly working fund manager, and it is worth highlighting their names. For a fund to achieve greatness, fund managers generally need to have managed it for at least 3-5 years and have experienced complete bull and bear tests.

Investing in funds generally involves two types of people:#

The first type: beginners, unsure where to start.

The second type: those who have invested for a while and have learned some tricks.

Whether you are the first or the second type, it doesn't matter, because when buying actively managed funds, we are essentially betting on the fund manager, who is the soul of the actively managed fund.

Active funds are not like passive funds, which can be bought with closed eyes; beginners still need to be cautious about avoiding pitfalls:

1. Avoid buying too many funds; it’s hard to manage with limited energy.
2. Diversify investments; no need to buy repeatedly in the same industry.
3. Avoid frequent buying and selling; high transaction costs may overshadow returns, and after selling, you need to consider new investments, consuming too much energy.
4. Be cautious of funds listed on the homepage of fund companies; those funds often have already risen significantly, and chasing high can easily lead to being trapped.

For beginners, selecting 3-5 excellent funds from over 7,000 funds is a significant challenge.

Newbies hope others can directly tell them which fund to buy, but funds do not always rise without falling.

Even if you follow the trend to buy, when facing a significant drawdown in the fund, ask yourself if you can bear it. When the market rises, learn to take profits at the right time.

Feel that there are no shortcuts to investing; even if you don't know how to choose, you still need to have your own judgment criteria.

So how do you select a quality fund?

Choosing a fund is like choosing a partner. First, search, then compare, and finally observe.

First, you need to have a standard for your "other half" in mind; with these standards, you can start searching.

Second, if there are several equally excellent candidates in front of you, you will definitely need to make a comparison.

Finally, choose the one you like the most and observe for a while before "marrying."

Here are some commonly used indicators for screening funds:

Fund Managers

Active funds mainly involve entrusting funds to fund managers for management.

Fund managers need to have a long-term commitment to managing a fund, ideally having experienced two bull and bear cycles, and their past performance should consistently rank in the upper-middle level.

They will screen through the following aspects:

• Directly pass if they have been in office for less than 2 years or frequently change.
• Check the previous fund managers; ideally, the same person has managed this fund for the past 3-5 years, indicating that the fund manager has over 3 years of management experience and has experienced bull and bear cycles.
• Look at the past funds managed by the fund manager and their performance; if the 3-year, 5-year, and 10-year performances are all good, it indicates that the fund manager has their own methodology.
• The fund manager's expertise and the stocks held should align with your preferences; for example, if you are optimistic about the technology sector, you should look for managers who excel in growth investments.
• You can also choose fund managers based on market cycles; for example, if liquor stocks perform well this year, you can select managers who excel in value investments.

Fund Scale

Choose funds of medium scale, around 1-3 billion.

If the fund scale is too small, falling below 50 million for 60 consecutive working days, there is a high risk of liquidation.

If the scale is too large, first, the fund manager may not have enough energy to manage it. Secondly, the flexibility of adjustments is greatly reduced.

Holding Ratio#

Understanding the risk attributes of a fund and the industries it invests in can be done through the stock holdings and their ratios.

For example, looking at this fund's holdings, it is evident from the stock names that this is a fund focused on the pharmaceutical theme.

If you are optimistic about a certain industry or theme, such as the food industry, cement and building materials, or pork concepts, you can find them in the thematic fund section of Tiantian Fund.

Fund Ratings#

Currently, rating agencies include Morningstar, Galaxy Securities, Shanghai Securities, Haitong Securities, and Jiaan Jinxin, among others.

Among them, Morningstar is recognized as a relatively authoritative rating agency; Ant Financial in Alipay uses Morningstar ratings, with 5 stars being the highest and 1 star the lowest.

Rating agencies mainly rank funds based on past performance, expected returns, and risks.

Each rating agency has different standards and principles, so it is advisable to refer to multiple sources.

Moreover, if the fund manager frequently changes, the fund rating may still reflect the previous manager's performance and may not accurately represent the current fund situation, so fund ratings are just one of the screening indicators and should not be the core advice for buying or selling funds.

Fund Company Scale#

You can filter by the ranking of fund companies on Tiantian Fund, choosing those with longer establishment times and larger scales.

Generally, larger and longer-established fund companies have built strong research teams and a complete investment system.

1. Investment Objects#

Most of the money is used to buy what it is named. Buying money market instruments is called a money market fund, buying stocks is called a stock fund, and buying bonds is called a bond fund.

Xiaoming plans to play with funds, which is equivalent to having an empty cup. Bonds are milk, stocks are black coffee; what you pour into the cup and how much determines the nature of the drink.

If the cup contains 80% or more milk (bonds), it is a milk cup—bond fund.

Filling it with pure milk is a pure bond fund.

If a small portion of convertible bonds is added, it becomes flavored milk—primary bond fund.

If a small portion of coffee (stocks) is added, but still 80% is milk, it can only be considered a coffee milk flavored drink, called a secondary bond fund.

But one day, Xiaoming grows up, and milk can no longer satisfy his needs. He wants something stimulating to achieve higher returns, so he drinks coffee—stock fund.

If the coffee content reaches 80%, it belongs to this category, as not everyone likes American coffee.

Xiaoming has a girlfriend who prefers a stronger milk flavor in her coffee, meaning the coffee ratio drops below 80%, turning it into a latte, which is called a mixed fund.

So 80% is a dividing line.

And there are many flavors of lattes—

If coffee is more than 60%, it is called a 偏股型混合基金 (equity-biased mixed fund).

If milk is more than 60%, it is called a 偏债型混合基金 (bond-biased mixed fund).

If milk and coffee are close to a 1:1 ratio, it is a 股债平衡型混合基金 (balanced mixed fund).

There is also a type where the ratio of milk to coffee is determined by the weather and mood, which is called a 灵活配置型混合基金 (flexibly allocated mixed fund).

But one day, Xiaoming's novelty wears off, and he wants to try all kinds of coffee. However, due to well-known reasons, he is too poor to buy them all and can't finish them.

So he buys a box of sample packs, the top 10 recommended trendy coffees online, each in a small bag; this pack is called FOF (Fund of Funds), a fund of funds, also known as the Father of Father.

After mentioning "Father," we must also mention "Mother"—MOM (Manager of Manager), a fund of fund managers, which is just starting in China.

2. Management Methods#

From the management method perspective, funds can also be divided into active funds and passive funds.

In the same milk coffee beverage shop, some are managed solely by the owner, relying on experience to concoct. How good it tastes depends on the master's skill; this is an active fund.

Choosing a good active fund and finding the right fund manager is crucial.

There are also owners who want their level to be more stable, standardizing the process of making milk coffee, pre-setting steps and ratios to produce standardized drinks; this is a passive fund.

The popular index funds belong to this category.

It's like Starbucks employees keep changing, but the taste doesn't change much. Although many fund companies have launched the same index, buying from one or another won't result in significant differences in index returns.

This is why, when we previously selected the CSI 300, we only needed to consider those dimensions.

3. Fundraising Objects#

Once the drink is made, it is written on the menu and available to all customers; this is called a public fund. Publicly issued, with low investment thresholds, it is the choice of ordinary people.

There is also a private kitchen, which only serves high-end routes, targeting specific groups; this is a private fund. Want to invest? First, take out 1 million.

Since the dishes are not listed on the menu, what to eat is not something ordinary people can know. Whether it tastes good is known only to a small group.

4. Operation Methods#

According to the operation method, funds can also be divided into open-end funds and closed-end funds.

The names are self-explanatory.
Closed-end funds have their money locked up, like bank time deposits; during the specified closed period, they cannot be redeemed and can only be transferred on the stock exchange.

Thus, this type of fund has its scale determined from the start, giving the fund manager ample freedom to operate.

This also means that choosing the right fund manager is crucial. Otherwise, one wrong step leads to a long period of regret throughout the closed period.

Thus, open-end funds emerged. The fund doors are wide open, and you can apply for redemption at any time.

However, this method also has drawbacks. It must closely follow the market's pace, even indulging its temper.

If the market irrationally crashes one day, fund managers are forced to cut positions; otherwise, investors won't accept it, resulting in further declines in valuation, creating a vicious cycle.

5. Trading Places#

The stock exchange mentioned above is the "place" here.

Funds traded on the stock exchange are called on-market funds.

Funds traded outside the stock exchange are called off-market funds.

So what does this "place" do?

It is like a high-end flea market; you enter with a ticket (account opening). Unwanted drinks are sold here, and those who want them buy them. This operation is called buying and selling.

Of course, you can also directly order drinks from the owner here; if you don't want them after receiving them, you can return them; this is called subscription and redemption.

However, finding the owner in the market has a high threshold, usually starting at 500,000, with some even requiring 1 million.

In contrast, for off-market subscriptions, there are no such high capital requirements. Now, most major platforms start at 10 yuan.

To summarize,
In on-market trading, you can both buy and sell, as well as subscribe and redeem;
But in off-market, you can only subscribe and redeem.

As drinks develop to a certain stage, they always need to innovate. Therefore, the five major classifications mentioned above can be arranged and combined to form new flavors.

For example, ETFs (Exchange Traded Funds) are a combination of on-market funds + open-end funds + index funds, abbreviated as "traded open-end index funds."

ETF-linked funds are designed to break the barriers of "place," specifically serving those who do not want to trade in the market and do not have stock accounts.

Because different types of funds have their advantages and disadvantages, some hybrid versions will emerge.

For example, enhanced index funds are passive funds with typically 20% of the positions managed actively by fund managers.

It is often mentioned that "risk and return go hand in hand." To make money, one cannot just look at historical returns; one must also assess their risk tolerance.#

Investing is actually a process of continuously understanding oneself and blending market experience.#

Before buying funds, most people overestimate themselves.#

Story 1:

Before the New Year, the fund momentum was strong. A friend around me saw others making money on technology funds and, feeling envious, followed suit. Later, affected by the pandemic and the global market, technology-themed funds plummeted, losing about 20%.

Unfortunately, she entered the market at a relatively high position, feeling particularly helpless when it fell. When I talked to her, I found she had fallen into a misunderstanding, knowing nothing about the financial products she purchased.

Story 2:

I have a classmate's sister who put most of her money in a demand deposit, thinking it could be flexibly allocated when needed.

Currently, stable financial products have the function of on-demand withdrawals; even if placed in a money market fund with a very high safety index, she could earn several thousand in returns. I really feel sorry for her.

These are actually two extreme cases: one blindly follows and buys an unfamiliar financial product, while the other completely avoids selection. I believe you may have such people around you to varying degrees.

1. Do not blindly choose a financial product you do not understand.

2. Avoid touching what you do not understand.

3. Do not trust others' recommendations, as only you are responsible for your gains and losses.

4. The funds recommended on the platform's homepage are mostly those that have already risen significantly, and chasing high can easily lead to being trapped.

Some funds indeed have high returns, but before investing, everyone should assess their own risks. Blindly pursuing high-return products, can you ask yourself if you can bear the high risks that come with high-return products?

Before investing, you can ask yourself:

1. What return do you hope to achieve from your investment?
2. How much risk can you tolerate?

In most cases, returns are positively correlated with risk. For example, common stocks are perceived to have high risks; a single day's fluctuation can be as much as ±10%.

So why do so many people rush into the stock market?

Today, let’s first understand the classification of funds and the returns and risks they generate.

Funds are classified according to their investment direction, commonly into four types: money market funds, bond funds, mixed funds, and stock funds.

Buying a fund means you entrust a sum of money to a professional institution or fund manager to manage for you. They will invest the raised funds in various products, such as bonds, stocks, or money market instruments, etc. This is the so-called "let professionals handle professional matters."

In terms of risk levels, the lowest risk is money market funds, followed by bond funds, while mixed funds and stock funds carry higher risks.

Money Market Funds#

Risk Level: Low

Money market funds mainly invest in bonds, central bank bills, and large-denomination certificates of deposit with maturities within one year. These investment tools are called money market instruments, and their safety factor is very high.

Yu'ebao is one of the well-known money market funds.#

Bond Funds#

Risk Level: Medium

Bond funds invest over 80% of the raised funds in bonds.

Before investing in bond funds, we need to understand what bonds are. The bonds we refer to here are generally government bonds, corporate bonds, company bonds, or financial bonds.

Funds that invest 100% in bonds are called pure bond funds, which are relatively low-risk among bond funds.

We can see the differences from the fund's holdings in the image below.

Mixed bond funds will invest up to 20% of their assets in stocks or other areas. When the stock market is not performing well, the individual stocks may decline, causing the net value of bond funds to also drop.

Investors unwilling to bear losses can consider pure bond funds.

The returns of bond funds are higher than those of money market funds, so the risks are slightly higher. Under what circumstances might there be a risk of decline?

First, credit risk.

If the companies in which the bond fund invests default and cannot repay on time, the fund will be affected.

Second, interest rate risk.

When interest rates rise, bonds may face massive sell-offs, leading to bond devaluation and declines in bond funds.

The probability of these two situations occurring is still relatively low, so when selecting bond funds, it is advisable to choose those with shorter durations and lower proportions of credit bonds to minimize risks.

Mixed Funds#

Risk Level: High

Mixed funds invest simultaneously in stocks, bonds, and money market instruments without a clear investment direction.

Their returns and risks lie between those of stock funds.

Mixed funds are also divided into several categories: equity-biased mixed funds, bond-biased mixed funds, balanced mixed funds, and flexibly allocated mixed funds.

The first three can be understood from their literal meanings: equity-biased mixed funds invest most of their assets in stocks, bond-biased mixed funds focus on bonds, and balanced mixed funds distribute investments across stocks, bonds, and other varieties.

Flexibly allocated funds are relatively flexible.

When the stock market is performing well, fund managers will allocate most of the assets to stocks; when the stock market is not performing well, they will adjust their positions, reducing stock holdings and increasing bond holdings.

The performance of mixed funds mainly depends on the fund manager's level, so assessing the fund manager is the primary condition when selecting.

Stock Funds#

Risk Level: High

This is easy to understand; funds that invest 80% of the raised funds in stocks are stock funds.

Some investors want to enter the stock market but lack the time and energy to trade stocks, as well as the professional and rich stock-picking experience.

So what to do? The professional matters should still be entrusted to professional institutions, and they can purchase stock funds from fund companies.

Buying a stock fund is equivalent to purchasing the stocks that the fund invests in.

Stock funds are less risky than directly buying a single stock because stock funds invest in multiple stocks, diversifying the risk.

The above are the four common types of funds. The various types of funds on fund platforms can basically be categorized into these four types. For example, the index fund we commonly see belongs to the category of stock funds.

Summary:

From the above image, we can conclude that risk and return are positively correlated. If you want to pursue higher returns, you must bear the risk of capital loss. Therefore, before investing, it is advisable to conduct a risk assessment to evaluate whether you are suitable for:

1. Is a low net value fund more worth buying?
2. What does different net value mean?
3. How to choose the right fund?

Recently, I heard friends say, "Wow, this newly issued fund is so cheap, with a net value of only 1 yuan; I must buy it! There must be a lot of room for future growth! When it rises high, I will buy in, won't that be a loss!" Wait! Don't rush. In fact, every fund starts with a unit net value of 1 yuan. Everyone has actually fallen into a misunderstanding, bringing the idea of "buy low and sell high" from stocks into fund trading, believing that the lower the net value of a fund, the cheaper it is, and the greater the potential for future growth and investment value. No, no, no, thinking this way is definitely wrong! Lazy cat needs to quickly explain to everyone what the net value of a fund is and how it affects fund trading. Is a lower net value really more cost-effective?

First, net value comes in many types. The net value people usually refer to is generally the unit net value; there are also cumulative net values and real-time net values (valuations).

1. Unit Net Value
   Let's first look at how the most common unit net value is calculated.

Fund's unit net value = total net assets / fund shares.

Simply put, it is

How much does one share of the fund sell for?

Assuming there is a fund that holds 10,000 shares of stock A and 20,000 shares of stock B, and this fund has a total of 100,000 shares. If stock A is priced at 8 yuan and stock B at 10 yuan, then the total value of the stocks held by this fund is:
10,000✖