Many novice investors have no concept of broad based index funds, and do not know what broad based index funds are. Here is a brief introduction to the concept of broad based index funds to help novice investors better understand index funds.
According to the different industries covered by the companies behind the index, we can divide the index into two types, one is broad based index, and the other is industry index.
What is the broad base index? The broad base index has two restrictions: 1. It contains more than ten constituent stocks; 2. The industry of constituent shares is not restricted.
What is the industry index? The industry index also has two conditions: 1. It contains more than ten constituent stocks; 2. The restricted constituent shares must belong to a certain industry.
Broad based index funds are funds that track broad based indexes, and industry index funds are funds that track industry indexes.
For example, we are familiar with the CSI 300 Index, which is the largest 300 stocks selected from the Shanghai Stock Exchange and Shenzhen Stock Exchange. Therefore, the CSI 300 Index can well avoid investment risks. Since the CSI 300 is a stock selection based on the size of the company, it does not restrict the industry. The CSI 300 index is a broad-based index.
For example, the CSI consumption index selects companies engaged in the consumer industry from the companies included in the CSI 300 and CSI 500. The CSI consumption index also includes more than 10 constituent stocks. At the same time, it restricts the industry of constituent stocks and stipulates that they must be stocks in the consumer industry. Therefore, the CSI consumption index is an industry index fund.
Broad based index funds are more comprehensive than industry index funds. They cover all ten industries and have stronger stability and vitality. Therefore, we ordinary investors should start with broad based index funds when they first invest in index funds.
