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NOTE

Fund Classification

English translation of the original VNote “Fund Classification”, preserving its structure with only necessary small corrections.

InvestingUpdated 5 min readhistorical

This is a historical learning note and may contain outdated or incomplete understanding.

Note: The original VNote structure and historical views are preserved. Product rules, returns, policies, and specific assets are time-sensitive; only clear errors or changed institutional rules are corrected minimally. This is not investment advice.

1.1. Classification Criteria

  • By whether units can be added/redeemed: open-ended and closed-end.
  • By investment target: equity, mixed, bond, money-market.
  • By investment style: growth, value, balanced.
  • By investment region: domestic, QDII, Hong Kong mutual-recognition funds.
  • By management style: passive and active.
  • By whether bought directly through the fund-company/subscription-redemption channel or traded on exchange: off-exchange and exchange-traded.

1.2. Investment-Style Classification

  • Comparing a fund’s daily movement with the CSI 300, ChiNext, and historically the SME-board-related indexes can give a rough indication of its current portfolio style. The Shenzhen Main Board and SME Board were merged in 2021, so related index names and classifications have changed.
  • If fund behavior is closer to ChiNext or former SME-board-related indexes, the note interprets it as more growth-oriented.
  • If behavior is closer to the CSI 300, the note interprets it as more value-oriented. It suggests comparing on days when those indexes diverge significantly.

1.2.1. Growth Fund

  • Generally a fund investing mainly in growth stocks.
  • Growth stocks are companies still in a high-growth stage.

1.2.2. Value Fund

  • A fund with a basic objective of seeking stable medium/long-term returns in the original note.
  • The note describes holdings such as large-cap blue chips, corporate bonds, and government bonds, with greater emphasis on risk control and stable appreciation.

1.2.3. Balanced Fund

  • Invests in both value and growth stocks and across multiple industries to seek moderate risk.

1.3. Classification by Investment Target

1.3.1. Money-Market Fund

  • Invests specifically in relatively low-risk money-market instruments.
    • Money-market instruments: short-term debt instruments, such as government bills, central-bank bills, commercial paper, bank deposits, interbank deposits, etc.
  • Return: the original note recorded annualized returns around 2-3%; actual returns vary with money-market rates and are not fixed.
    • 7-day annualized yield: annualized based on recent seven-day income.
    • Income per 10,000 units: income generated by 10,000 units on that day.
    • The original note observed higher month/quarter/year-end rates and referenced SHIBOR.
  • Liquidity: the original note recorded T+0; subscription, fast-redemption, and settlement rules vary by product.
  • Risk: generally a lower-risk fund category, but it is not a bank deposit and does not guarantee principal or return.
1.3.1.1. Exchange-Traded Money-Fund Arbitrage
  • Money-market funds that can be traded on exchange.
  • The note describes buying when exchange price is below 100 and redeeming through the primary channel to capture a price gap.
  • Return: exchange/off-exchange price difference * units.
  • Risk: not zero; convergence failure, liquidity, transaction costs, subscription/redemption limits, and rule changes can all matter.
  • Liquidity: the original note recorded T+0.
  • Method
    • Choose the right fund
      • Supports exchange trading and primary-market subscription/redemption.
      • Historical T+0 requirement in the strategy.
      • Large size and liquidity.
      • Historical examples: Hwabao Tianyi, Yinhua Rili.
    • Choose the right broker
      • The historical note required the broker to be an authorized participant/primary dealer for the fund.

1.3.2. Bond Funds

1.3.2.1. What They Are
  • At least 80% invested in bonds under the fund-classification rule; some types may also hold equities or other permitted assets.
    • Bonds: government, financial, enterprise/corporate bonds.
1.3.2.2. Investment Scope

By scope, the note divides them into pure bond and mixed bond funds. Bonds

  1. Pure bond
    • Invests in bonds rather than stocks.
  2. Mixed bond
    1. Bonds + stocks or other permitted risk assets, depending on product category.
    2. Historical classification includes primary bond funds, secondary bond funds, and convertible-bond funds.
      • The original note records that old primary bond funds could participate in primary-market new-share subscriptions; that practice was later stopped, while convertible bonds remained possible under product rules.
      • Secondary bond funds can invest in bonds and a limited share of equities under product rules.
      • Convertible-bond funds focus on convertible bonds, with the fund contract defining the required allocation.
1.3.2.3. Liquidity / Duration

The note divides short-duration and medium/long-duration bond funds by maturity/duration.

1.3.2.4. Return and Risk
  • Higher potential return than money-market funds in the note, with somewhat higher risk.
  • Other things equal, longer-duration bonds are generally more sensitive to interest-rate changes; total risk for short- and long-duration bonds also depends on credit quality and liquidity.
Liquidity Risk of Bond Funds

The note discusses monetary tightening and rising rates: when current yields rise, older lower-yield bonds fall in price.

Silicon Valley Bank Failure: Are Bank Deposits Still Safe? Why Did Bank Wealth-Management Products Fall in November 2022? - Zhihu

1.3.3. Equity Funds

  • At least 80% invested in stocks under the applicable classification rule.
  • By direction: consumer, healthcare, defense, etc.
  • By style
    • Large-cap, mid-cap, small-cap
    • Value, growth, balanced

1.3.4. Mixed Funds

  • Can invest in stocks, bonds, money-market instruments, etc.
  • The original note further classified them by stock/bond proportions:
    • Equity-biased: 50%-70% stocks
    • Bond-biased: 50%-70% bonds
    • Balanced stock/bond: roughly 40%-60%
  • These percentage labels are historical classification heuristics; actual fund classification and limits depend on current regulation and fund contracts.

1.4. Primary vs. Secondary-Market Classification

  • “On-exchange” generally refers to exchange trading.

1.4.1. Off-Exchange Funds

  • Purchased through the primary subscription/redemption channel rather than exchange trading.
  • Investors subscribe/redeem according to the fund’s rules.

1.4.2. Exchange-Traded Funds

  • Bought and sold in the secondary market, often from other investors through a securities exchange.
  • Types
    • LOF: Listed Open-Ended Fund
      • Off-exchange subscription/redemption + exchange trading.
    • ETF: Exchange-Traded Fund. Traditional ETFs overwhelmingly used index-tracking strategies; since 2026, Shanghai and Shenzhen exchanges have introduced active ETF rules, so ETF no longer means “necessarily passive index tracking.”
      • Exchange trading + primary-market subscription/redemption, with mechanisms depending on product rules.
    • Graded funds
    • Closed-end funds

1.4.3. On-Exchange vs. Off-Exchange

  • Exchange-traded funds can trade at a premium/discount because they trade in the secondary market.
  • Exchange prices are real-time; off-exchange subscription/redemption prices are commonly based on NAV under the product’s cutoff rules.
  • The original note summarized settlement as “on-exchange T+1, off-exchange T+2”; actual trading, subscription/redemption, and cash-arrival rules vary by fund type, market, and product.

1.5. Management-Style Classification

1.5.1. Active

1.5.2. Passive (Index)

1.5.2.1. What Is an Index?
  • An indicator describing the overall price-level change of a stock market or market segment.
    • For example, a 2% rise in the CSI 300 means the weighted index rose 2%, not that every constituent rose 2%.
  • In simple terms, representative stocks are selected and combined using an index methodology.
1.5.2.2. Classification
1.5.2.2.1. ETF
  • Exchange-Traded Open-Ended Fund
    • Exchange-traded: listed and traded on a securities exchange.
    • Open-ended: supports subscription/redemption under product rules.
    • Traditional ETFs often track indexes; active ETFs also exist under 2026 rules, so ETF is not necessarily passive.
1.5.2.2.2. LOF
  • Listed, open-ended.
    • Listed: can trade on a securities exchange.
    • Open-ended: can subscribe/redeem under fund rules.
    • Can be active or passive.
1.5.2.2.3. ETF vs. LOF
  • Subscription/redemption consideration differs.
    • Traditional ETFs commonly use in-kind baskets, while LOFs commonly use cash; exact mechanisms depend on the product.
  • LOF subscription thresholds can be lower.
    • The original note recorded higher ETF primary-market thresholds and lower LOF thresholds; current minimums depend on the product.
  • Subscription/redemption venue differs.
    • ETF primary-market creation/redemption is handled through exchange-related mechanisms; LOF can have both on- and off-exchange channels.
1.5.2.2.4. Graded Funds

A historical product type in mainland China; public-fund graded-fund restructuring/termination has changed this market significantly.

1.6. Classification by Investment Region

1.6.1. QDII Funds

1.6.1.1. Why They Exist
  • The original note explained QDII partly through individuals’ annual convenient foreign-exchange quota. More accurately, QDII operates within China’s capital-account management and institutional quota framework, allowing qualified domestic institutions to raise domestic funds and invest abroad.
1.6.1.2. What It Is
  • Qualified Domestic Institutional Investor.
  • Holding such a fund gives investors indirect exposure to overseas assets and overseas asset allocation.
1.6.1.3. Types
  • QDII equity: historical examples such as ICBC Credit Suisse Global Allocation or GF Nasdaq Index.
  • QDII bond: historical example such as ICBC Credit Suisse Global USD Bond.
  • QDII mixed: historical example such as Huatai-PineBridge Asia Enterprise.
  • QDII alternatives: historical examples such as E Fund Gold Theme or Penghua US Real Estate.
1.6.1.4. Characteristics
1.6.1.4.1. Advantages
  • Richer investment universe.
  • Reduces dependence on a single market.
1.6.1.4.2. Disadvantages
  • Exchange-rate risk (two-edged).
  • Generally higher fees.
  • Longer subscription/redemption settlement times.

2. References

How to Buy Bond Funds - Zhihu