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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 in 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 specific 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
   To facilitate the analysis of the fund industry, 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 funds (the latter can invest in non-standard assets), but the business conducted by private equity 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 referring to public fund business, which can be divided into closed-end funds and open-end funds, with the latter further divided into several categories such as equity funds, bond funds, mixed funds, money market funds, and others.
(4) Of course, we cannot avoid the separate account business in the fund industry, which is fully called 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 a controlling shareholder.
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 there are 132 securities firms and 68 trust companies. In addition to securities 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.#

First, let's take a look at the 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 3 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, namely Taiping Fund (91.50% owned by Taiping Asset Management) and Guolian An Fund (51% owned), China Life Asset Management (85.03% owned) Guoshou Anbao Fund, Huatai Insurance Group (80% owned) Huatai Baoxing Fund, Taikang Insurance Group (99% owned) Taikang Asset Management, and PICC Group (100% owned) PICC Asset Management.

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

2. 15 bank-affiliated fund companies: 5 state-owned large banks, 4 joint-stock banks, 4 city commercial banks, and 2 foreign banks.
   Currently, there are 15 banks that have obtained public fund licenses, including 5 state-owned large banks (Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, with only Postal Savings Bank remaining), 4 joint-stock banks (China Merchants Bank, Industrial Bank, Shanghai Pudong Development Bank, Minsheng Bank), and 4 city commercial banks (Beijing Bank, Shanghai Bank, Nanjing Bank, and Ningbo Bank). 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 UBS Fund, Baoying Fund of China Railway Trust, Beixin Ruifeng Fund of Beijing Guoxin, Dacheng Fund of Zhongtai Trust, Harvest Fund of Zhongcheng Trust, Huabao Trust's Huazhong Fund, Huaren Shenkong Trust's Huaren Yuanda Fund, and Huachen Trust's Huachen Future Fund.

5. 66 securities-affiliated fund companies#

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

• (1) 6 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 5 fund companies 100% owned by securities firms (such as Xiangcai Securities' Xiangcai Fund, AVIC Securities' AVIC Fund, CICC's CICC Fund, Huarong Securities' Huarong Fund, and Dongfang Wealth 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 Gains 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 (Shouchuang 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#

Additionally, 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' Nuode Fund, Xinwo Capital Holdings' Xinwo Fund, and Jianyin Investment Holdings' Guotai Fund, etc.

(3) Regional Distribution: Shanghai, Shenzhen, and Beijing account for 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 the 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. Clearly, the excessive concentration in these three places has little discussion significance, and we will focus on other regions.

• 1. Six provinces each have 1 company. They are Baoding in Hebei (i.e., Huarong Fund, 100% owned by Huarong Securities), Taiyuan in Shanxi (i.e., Shanxi Securities with 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 companies, both of which are trust-affiliated, namely Xinhua Fund (Xinhua Trust) and Yimin Fund (Chongqing International Trust).
• 3. Fujian has 4 companies, including 2 in Fuzhou (i.e., Xingye Fund, 90% owned by Industrial Bank, and Xingyin Fund, 76% owned by Huafu Securities) 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 companies, namely Hongde Fund, Huisheng Fund, and Xizang Dongcai Fund (100% owned by Dongfang Wealth), with the first two being individual-affiliated fund companies.
• 5. Guangdong, excluding Shenzhen, has 5 companies, with 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 companies, with 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 approved public fund management companies over the years can better grasp the policy orientation.

• 1. Overall, there have been two periods in history when the number of approved fund companies 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 dominated by trust and securities firms, until the emergence of bank-affiliated and insurance-affiliated funds in 2002 and 2003, respectively.
• 3. Personal, private equity, real estate, and internet-affiliated funds in China all emerged after 2015, as fund companies before 2015 mainly operated 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).#

1. From the registered capital situation of the 145 fund companies, there are currently 6 fund companies with registered capital exceeding 2 billion yuan, all of which are securities firms that have obtained public fund licenses, and strictly speaking, do not count as 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 largest financial backers in the financial system. In terms of registered capital distribution, 25 fund companies have a registered capital of 100 million yuan, 124 companies have a registered capital below 1 billion yuan, 114 companies have a registered capital below 500 million yuan, and 14 fund companies have a 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 of a fiduciary nature (i.e., off-balance-sheet), discussing its on-balance-sheet business is not very meaningful. It should be noted that due to the lack of published data on the scale of corporate annuities and social security funds in the second half of 2019, to avoid inconsistencies in data comparisons, 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 declining 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, and open-end funds can be further divided into five categories based on investment direction: 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 more than two years.
     From the composition perspective, the proportion of closed-end funds in the public fund industry is very small, less than 10%, but their scale is 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 funds have 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, with money market funds significantly increasing by 6.17 trillion (non-money market funds only increasing by 2.65 trillion) during this nearly five-year period, driven by internet funds. 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, each accounting for about 50% of public funds.
• 3. Equity, mixed, and bond funds account for less than 50% of open-end fund scale.
     Among the five categories 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 capitalization of A-shares currently exceeds 35 trillion, indicating that the public fund industry contributes less than 1% to the total A-share market capitalization.

(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 document for this business originated from the "Pilot Measures for Specific Client Asset Management Business of Fund Management Companies" (CSRC Order No. 83) issued by the CSRC on September 26, 2012.

• 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 conduct separate account business by establishing dedicated business departments or subsidiaries (i.e., fund subsidiaries).
• 2. Currently, the scale of separate accounts 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 opening of separate account business in 2012, the separate account business of fund subsidiaries experienced explosive growth, rapidly increasing to 11.15 trillion by the end of September 2016, and then quickly shrinking 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, 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 bull market 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 to sell funds decreased significantly, severely impacting the fund industry, forcing fund management companies to complete sales through direct sales. By 2016, the direct sales ratio of fund management companies reached over 80%, forming a typical self-managed sales model. After 2017, the motivation for bank agency sales increased, and the proportion of direct sales correspondingly decreased, while the securities firm 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. The top five are E Fund, Boshi Fund, Huaxia Fund, Southern Fund, and the 6th to 10th are Bank of China Fund, Harvest Fund, Guangfa Fund, Fuquan Fund, and China Merchants Fund, while the management scale of Yongying Fund from the city commercial bank system reaches 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). There are 21 institutions with money market fund scales exceeding 100 billion. The 3rd to 10th are E Fund, ICBC Credit Suisse Fund, Southern Fund, Boshi Fund, Harvest Fund, Guangfa Fund, and Penghua Fund.

(3) From the overall management scale perspective, Tianhong Fund ranks first with 1.23 trillion due to its high money market fund scale, and there are 37 institutions with management scales exceeding 100 billion. The 2nd to 10th institutions are E Fund, Boshi Fund, Southern Fund, Jianxin Fund, Harvest Fund, Huaxia Fund, ICBC Credit Suisse 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 a standard, the market usually refers to the funds before this as old funds and the funds after the introduction of a series of regulations as new funds. It can be said that between 1997, China's fund industry was in a stage of continuous exploration, where many things were not very standardized (such as multi-headed management of issuance and approval, and many investment directions were not restrained), 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 Zhuhai International Trust Investment Company initiated the Zhuxin Fund) and fund company (Shenzhen Investment Fund Company) were established successively, followed by the establishment of investment funds 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 Committee (with Vice Premier ZHJ concurrently serving as the director) and the China Securities Regulatory Commission (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, Zibo Fund (a company-type closed-end investment fund) and Zibo Township Enterprise Investment Fund Management Company (initiated by the China Rural Trust Company, Zibo Trust Company, and several banks) 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 a notice on further strengthening macro-management of the securities market, stipulating that the central bank is responsible for approving and managing securities institutions, approving investment fund securities, and financial institution bonds (including trust beneficiary bonds).

5. In May 1993, the central bank issued an urgent notice to immediately stop the irregular issuance of investment funds and trust beneficiary bonds. In July of the same year, the National Financial Work Conference was held, clearly stating that the financial industry would be rectified.

6. In October 1994, leaders of the State Council Securities Committee 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 Committee 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), which 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, and venture capital funds, were also transferred to the CSRC.

9. In December 1997, the CSRC issued a series of documents, such as "Notice on Issues Related to the Application for Establishing Fund Management Companies," "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 a notice on deepening financial reform, rectifying financial order, and preventing and resolving financial risks, clarifying the content of abolishing provincial branches of the central bank and 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 began formal piloting. At the same time, the period from 1998 to 2000 was also a period of rectification for China's financial industry, during which many problematic old funds did not fare well and mostly ended in liquidation.

1. In 1998, the first batch of fund management companies, including Guotai, Southern, Huaxia, Huaran, Boshi, and Penghua, was officially established and issued 6 fund products (with a total scale of 12 billion yuan). From March to July of that year, the five major banks (ICBC, CCB, ABC, BOC, and BOCOM) obtained fund custody qualifications.

2. In August 1998, the Ministry of Finance and the State Administration of Taxation jointly issued a notice on tax issues related to securities investment funds, and the CSRC issued a notice on issues related to the allocation of new shares by securities investment funds.

3. In August 1999, the central bank issued regulations on fund management companies entering the interbank market, allowing qualified fund companies to participate in the interbank market.

4. In October 1999, the CSRC and the China Insurance Regulatory Commission 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 investment managers for social security funds, but the proportion of social security fund investments in funds and stocks could not exceed 40%.

(3) Stumbling 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 open-end funds would be actively promoted. 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 "Caijing" published an article titled "Fund Scandals—Analysis of Fund Behavior Research Reports," directly pointing to 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 management agencies should take action," leading to ongoing debates. Notably, in January 2001, Wu Jinglian criticized the market situation and manipulators in another interview, sparking a major debate about China's stock market. It should be noted that Mr. Hong Lei, who currently serves as the chairman of the Asset Management Association of China, was also implicated in this fund scandal and was later transferred to the CSRC's fund regulatory department.

3. In January 2001, the CSRC issued a notice on improving the selection system for fund company directors, introducing the independent director system. At the same time, the fund department also issued opinions on the external cooperation of fund management companies.

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

5. In May 2001, the CSRC issued a notice on several issues related to the establishment of fund management companies, clarifying that besides 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 Great Innovation Era from 2001 to 2004: The Passage of the Fund Law, Joint Venture Pilots, QFII Implementation, Social Security Fund Entry into the Market, 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 initiatives and product innovations continuously emerging.

1. On October 31, 2001, Huaxia Fund and Morgan Stanley Fund 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 cannot exceed 33% (three years later, the foreign share cannot exceed 49%). Against this backdrop, in June 2002, the "Rules for the Establishment of Foreign-Invested Fund Management Companies" and "Rules for the Establishment of Foreign-Invested Securities Companies" were officially released. In December of the same year, Guotai Junan and Allianz Group jointly established Guolian An Fund Management Company, becoming the first approved joint venture fund company. In December of the same year, China Merchants Securities and a Dutch investment company jointly established China Merchants Fund, becoming the first approved joint venture fund company to commence operations. 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 in 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 in 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, and many foreign institutions subsequently obtained QFII qualifications, marking the official implementation of QFII.

4. In December 2002, Southern, Boshi, Huaxia, Penghua, Changsheng, and Harvest 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."

5. In August 2004, the CSRC and the central bank jointly issued the "Interim Measures for 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 Industry Category Fund (umbrella fund) initiated by Xiangcai Hefeng Fund (now Taida Hongli 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 launched.

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

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 bull market year for the Chinese stock market, which created a similar market environment for the fund industry that emerged from the Chinese capital market, especially driven by the stock reform policy, leading both the stock market and funds into a crazy bull market phase.

• 1. In September 2004, the CSRC issued the "Measures for the Administration of Securities Investment Fund Management Companies" and in February 2015, the central bank, the CBIRC, 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," 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, Huaxia 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 temporary slowdown in fund product approvals.
• 6. In June 2007, the CSRC issued the "Interim Measures for the Management of Qualified Domestic Institutional Investors in Overseas Securities Investment."
• 7. In November 2007, the CSRC issued the "Notice on Further Improving Risk Management Work in the Fund Industry," conducting 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" in the criminal law when the National People's Congress passed the "Criminal Law Amendment (VII)" in February 2009.

(6) The Era of Deregulation from 2008 to 2012: The Establishment of the Asset Management Association of China, 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 start of fund companies' separate account management business.
• 2. In April 2008, the CSRC issued the "Regulations on Securities Investment 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 Securities Investment Fund Product Innovation."
• 4. In May 2009, the CSRC regulated the specific 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 Fund (ETF) Link 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 Securities Investment Fund Sales Management Measures," clarifying matters related to 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 Securities Investment 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 investment in the domestic securities market.
• 10. In June 2012, the CSRC issued the "Notice on Issues Related to the Establishment of Initiated Funds" and the "Explanation on Issues Related to the Establishment of Initiated Funds," marking the official emergence of initiated funds.
• 11. In June 2012, the Asset Management Association of China was officially established.
• 12. In October 2012, Huatai Fund launched the industry's first "T+0" redemption mechanism for money market funds, which also triggered six years of craziness for money market funds.
• 13. 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 Pseudo Asset Management to True Asset Management from 2013 to 2017: The Launch of Yu'ebao, the Shanghai-Hong Kong Stock Connect Fund, Capital Preservation Funds, and Segmented Funds.#

This period was previously referred to as the era of large asset management, but in fact, it was the era of pseudo asset management, while also a period of rapid development for fund subsidiaries, with T+0 money market funds, capital preservation funds, segmented funds, etc., rapidly developing during this period. Of course, the Shanghai-Hong Kong Stock Connect Fund and mutual recognition of funds between Hong Kong and the mainland also reflect a positive aspect. It should be noted that during this period, especially starting in 2016, relevant departments of the regulatory system have already been preparing for the arrival of the true asset management era and have 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 a 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 a notice on further strengthening the risk management of specific client asset management business conducted by fund management companies and their subsidiaries, regulating channel business (such as filing, transparency of drawer agreements, etc.) and strengthening supervision of fund subsidiaries.

7. In September 2014, Harvest Fund launched the first equity investment fund in the industry to participate 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 (namely Southern Hang Seng Index ETF, Huaxia Shanghai-Hong Kong Stock Connect Hang Seng ETF, and the corresponding funds).

10. In February 2015, the Asset Management Association of China 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 "Supervisory Cooperation Memorandum" regarding the mutual recognition arrangement for funds between Hong Kong and the mainland, and issued supporting documents such as the "Interim Regulations on Mutual Recognition of Hong Kong Funds," allowing funds from Hong Kong and the mainland to sell to each other. By December of the same year, three Hong Kong mutual recognition funds were approved.

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

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

14. In January 2017, the Ministry of Finance and the State Administration of Taxation issued a supplementary notice on the VAT policy for asset management products.

15. In February 2017, the CSRC issued "Guidelines for 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 the Management of Liquidity Risk 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 Trend Towards Unification, and the Fund Industry Being 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 publicly segmented funds, while the fund subsidiary business that had developed rapidly for five years was also significantly suppressed. At the same time, money market funds began to face relatively strict regulation, and the entire large asset management industry is trending towards unification in basic operating rules, while the fund industry, which was foresighted, has become relatively proactive in the large asset management industry, especially in terms of asset management industry valuation, talent cultivation, and introduction.

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

Surname (fund company) + Name (investment direction or characteristics) + Ethnicity (fund type)

Choosing a fund is like choosing a person; each fund has its own resume. Understanding the resume allows you to become 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, equity 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 "ten thousand shares yield." Regardless of how it is displayed, it is not very useful for our fund selection.

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 prominent 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, the past is disclosed here, with a line chart + detailed list used together, clear and transparent. The trend chart "in the past month" shows the rise and fall, allowing you to judge the fund's character, whether aggressive or relatively stable; extending to "in the past five years," you can see if it can outperform the average of similar funds and the CSI 300. Accompanied by a table, looking at the ranking among similar funds over 3-5 years, you can know its ranking and whether it has consistently been among the best.#

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

⑥ Time to Start
Now that you buy, when does work start (confirming shares)? When can you calculate how much you have earned (checking profit and loss)? A timeline clarifies this.

⑦ Business Area
This is also a key point for fund selection, reflecting a fund's 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 equity fund, and the risk is naturally higher. Looking at the industry and heavy stocks, you can know its main business and whether it aligns with your recent "job" needs.

⑧ Business Scale
The professionalism can be seen from the scale. Earning a few hundred yuan in returns while discussing a business worth tens of billions refers to funds. However, a larger scale is not always better; if it exceeds 10 billion, the fund manager may not have enough energy to manage it, and reallocation becomes less flexible. If the scale is too small, falling below 50 million for 60 consecutive working days will make reallocation passive and may even lead to liquidation risk; a scale above 100 million is a safety boundary. Therefore, it is generally advisable to choose funds with a scale between 2.5-5 billion, but there are also excellent large caps above 5 billion.

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

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 a complete bull-bear test.

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 gained some insights.

Regardless of 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 actively managed funds.

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 insufficient energy.
2. Diversify investments; no need to repeatedly purchase within the same industry.
3. Avoid frequent buying and selling; transaction costs are high, and fees may outweigh returns. Moreover, after selling, you need to consider new investments, which consumes 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 someone can directly tell them which fund to buy, but funds do not always rise without falling.

Even if you follow the trend, when facing a significant drawdown in funds, 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 must 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 should have a standard for your "other half"; with these standards, you can search for them.

Second, if several equally excellent candidates are in front of you, you will certainly need to make comparisons.

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 primarily involve entrusting funds to fund managers for management.

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

They will screen based on 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 the fund for the past 3-5 years, indicating that the fund manager has over 3 years of management experience and has experienced bull-bear cycles.
• Look at the past funds managed by the fund manager and their performance; if the 3-year, 5-year, and 10-year performance has been good, it indicates that the fund manager has their own methodology.
• The fund manager's expertise and whether the stocks held align with your beliefs; for example, if you are optimistic about the technology sector, you should look for managers skilled in growth investment.
• You can also choose fund managers based on market cycles; for instance, if liquor stocks have performed well this year, you can select managers skilled in value investment.

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. Second, the flexibility of reallocating assets is greatly reduced.

Holding Ratio#

Understand the fund's risk attributes and which industries it invests in through the stock holdings and their proportions.

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

If you are optimistic about a particular 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, the institutions that provide fund ratings 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 uses Morningstar ratings, with 5 stars being the highest and 1 star being 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 should be referenced from multiple sources.

Moreover, if the fund manager frequently changes, the fund rating may still reflect the previous manager and may not accurately represent the current fund situation. Therefore, 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 that have been established for a long time and are of large scale.

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

1. Investment Objects#

The money is mostly used to buy what it is named after. Buying monetary instruments means it's a money market fund; buying stocks means it's an equity fund; buying bonds means it's a bond fund.

Xiaoming plans to invest in 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 makes it a pure bond fund.

If a small portion of convertible bonds is added, it becomes flavored milk—first-level 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, known as a second-level bond fund.

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

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

And 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.

The flavor of the latte can vary greatly—

If coffee is more than 60%, it is called an equity-biased mixed fund.

If milk is more than 60%, it is called a bond-biased mixed fund.

If milk and coffee are close to a 1:1 ratio, it is a balanced mixed fund.

There is also a type where the ratio of milk to coffee is determined by the weather or mood before ordering, which is called a flexible allocation 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 poor and cannot buy them all home, nor can he finish them.

So he buys a box of sample packs, the top 10 recommended trendy coffees, which is called FOF (Fund of Funds), a fund of funds, known in the industry as the Father of Father.

After mentioning "Father," we must also mention "Mother"—MOM (Manager of Manager), a fund that manages managers, which has just started 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, which is the 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, which is the passive fund.

The popular index fund belongs to this category.

Just like Starbucks employees keep changing, but the taste doesn't change much. Although many fund companies have launched the same index, buying from this one or that one won't differ much in index returns.

This is also why, when we previously selected the CSI 300, we only considered 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 a low investment threshold, it is the choice of the common people.

There is also a private kitchen that 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, only a small group knows.

4. Operating Methods#

According to the operating 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, only transferred on the stock exchange.

So this type of fund has its scale determined from the start, giving fund managers ample room to operate during the closed period.

This also means that choosing the right fund manager is crucial. Otherwise, one wrong step leads to endless regret for the entire closed period.

Thus, open-end funds emerged. The fund's doors are wide open, and you can redeem or subscribe at any time.

But this method also has drawbacks. It must closely follow market trends, even indulging its whims.

If the market irrationally plummets one day, fund managers are forced to cut positions; otherwise, investors won't accept it, leading to 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 an upgraded flea market, where 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, which is called subscription and redemption.

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

In contrast, off-market subscriptions do not have such high capital requirements. Now, most major platforms start at 10 yuan.

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

As drinks develop to a certain stage, they always need to innovate. Therefore, the five major categories mentioned above can be combined in any way to create new flavors.

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

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

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

For example, enhanced index funds are passive funds that also have 20% of their positions actively managed 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 merging with market experience.#

Before buying funds, most people overestimate themselves.#

Story 1:

Before the New Year, funds were booming, and a friend of mine saw others making money on technology funds and followed suit. Later, due to the pandemic and global market impacts, technology-themed funds plummeted, losing about 20%.

Unfortunately, she entered the market at a relatively high position, and when it fell, she was particularly at a loss. 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 puts most of her money in a demand deposit, thinking it allows for flexible allocation when needed.

Currently, stable financial products have the function of on-demand withdrawals, and even placing money in a high-security money market fund can yield several thousand in returns. I really feel sorry for her.

These are actually two extreme cases: one blindly follows to buy an unfamiliar financial product, while the other completely does not choose. I believe there are more or less such people around you.

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

2. Do not touch 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 them?

Before investing, you can ask yourself:

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

In most cases, returns are positively correlated with risks. For example, common stocks are perceived as high-risk; a day's fluctuation can be ±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 equity 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 money in different 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, money market funds are the lowest risk, followed by bond funds, while mixed and equity funds carry higher risks.

Money Market Funds#

Risk Level: Low

Money market funds mainly invest in bonds, central bank bills, and large interbank certificates with maturities within one year. These investment tools are known as money market instruments, and their safety 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 chart 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 depreciation and a decline 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 maturities and lower proportions of credit bonds to minimize risk.

Mixed Funds#

Risk Level: High

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

Their returns and risks lie between those of equity funds.

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

The first three types are self-explanatory; equity-biased mixed funds invest most of their assets in stocks, while bond-biased mixed funds focus on bonds, and balanced mixed funds allocate investments among stocks, bonds, and other varieties.

Flexible allocation funds are relatively flexible.

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

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

Equity Funds#

Risk Level: High

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

Some investors want to enter the stock market but lack the time and energy to trade stocks, as well as the expertise and experience in stock selection.

So what should they do? The professional matters should still be handled by professional institutions, so they can purchase equity funds from fund companies.

Buying equity funds is equivalent to purchasing the stocks that the fund invests in.

Equity funds carry lower risks than simply buying a single stock because equity 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 a category of equity funds.

Summary:

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

1. Are low net value funds 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 entered a misunderstanding, bringing the idea of "buy low and sell high" from stocks into fund trading, thinking that the lower the net value of a fund, the cheaper it is, and the greater the future growth potential and investment value. No, no, no, thinking this way is wrong! Lazy Cat needs to quickly explain to everyone what the net value of a fund is and how it relates to fund trading. Is a lower net value really more cost-effective?

First, net value comes in many types. The net value we usually refer to is generally the unit net value. There is also cumulative net value and real-time net value (valuation).

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

Fund unit net value = Total net assets / Fund shares.

In simple terms, 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, with a total of 100,000 shares of the fund. 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✖️8 + 20,000✖️10 = 280,000 yuan.

So, how much is each share of the fund worth? 280,000 / 100,000 = 2.8 yuan. This 2.8 yuan is the net value price of the fund. So is it true that the lower the net value, the more you earn?

Let me give you another example. Suppose you invest 10,000 yuan in two funds, fund C and fund D, with unit net values of 1 yuan and 2 yuan respectively at the time of purchase. Your holdings would be 10,000 shares and 5,000 shares respectively. However, your total assets are the same, still 10,000 yuan. If a year later, both funds increase by