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Funds: ready-made basketsrisk 3 of 5: medium, moves with markets

Stock index ETF

Rules, protection and tax below are for China.

What it is

An ETF that holds every company in an index, in the same proportions, and trades on the exchange like a share. There is no manager choosing stocks, just a rule, which is why the ongoing charge can be a tenth of an active fund's.

This is the instrument behind most of the honest advice you will ever read: buy the whole market cheaply, add to it regularly, and hold for decades. It captures the long-run growth of business without betting on which businesses.

It is still shares. A world index has fallen by half in a bad crash and taken years to recover. The reason it works is that people who kept adding through those years ended up well ahead; the reason it fails is that people sell at the bottom.

How it works

  1. The fund buys the index's constituents and issues shares that trade on the exchange all day.
  2. Large investors keep the price close to the holdings' value by creating or redeeming blocks of shares.
  3. The ongoing charge, typically 0.05 to 0.3 percent a year, is taken from the fund's assets.
  4. Dividends from the companies are paid out or reinvested, depending on the share class.

The honest pros and cons

For

  • The cheapest way to own hundreds or thousands of companies at once.
  • No manager risk: you get the market's return minus a tiny fee.
  • Trades any time the exchange is open, with a small spread.
  • Ideal for regular monthly investing.

Against

  • Falls as hard as the market it copies; a 30 to 50 percent drawdown is normal once a decade.
  • Which index matters: a home-country index is far less spread than a world one.
  • Foreign-listed funds can bring currency risk and withholding tax.
  • Some ETFs use derivatives to copy the index; check it holds the real shares if that matters to you.

Getting it in China

Stock index ETF available

Index funds are sold through the big payment and fund apps with automatic monthly plans, and ETFs trade on the Shanghai and Shenzhen exchanges through a securities account. CSI 300 and CSI 500 trackers are the mainstream choices; QDII index funds reach foreign markets under quota.

  • Account type: Securities account at a licensed broker (gains on A-shares are exempt for individuals; dividends are taxed at 20, 10 or 0 percent depending on holding period; a 0.05 percent stamp duty applies on sales)
  • Your protection: fund assets are held by a custodian bank separate from the manager; the securities investor protection fund covers broker failures, never market falls (source, checked 2026-09-17)
  • Tax here: individuals pay no tax on gains or distributions from public funds (source, checked 2026-09-17)

How to start

  1. Open a fund account in a payment or fund app, or a securities account for ETFs.
  2. Choose a CSI 300 index fund with a low fee and set an automatic monthly plan.
  3. Leave it running; the plan buys more units when prices fall.

Wherever you are

  1. Pick the index first: world or global funds spread furthest; single-country funds bet on one economy.
  2. Compare the ongoing charge and the fund's size; large, cheap and physically backed is the usual choice.
  3. Buy through your broker inside a tax shelter, set up a monthly purchase, and stop checking the price.

Try it

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Getting it from another country

Via United States restricted· available there

Buy a QDII fund or a Shanghai-listed QDII ETF that tracks a US index in yuan. Availability depends on the fund's remaining quota, and popular ones close to new money at times.

What you gain

  • US market exposure in yuan without touching the foreign exchange allowance.
  • Bought through the same apps and brokers as any domestic fund.

What you give up

  • Quotas run out and funds suspend subscriptions, sometimes for months.
  • Premiums over the underlying value appear when demand outruns quota.
  • Currency risk: a stronger yuan shrinks dollar gains.
  • Tax: gains on domestic funds including QDII are exempt for individuals; income from a foreign account, where one exists, is taxable at home (source, checked 2026-09-17)

Currency reality check

The same CNY 1,000 left for 10 years, at each country's savings rate:

Kept in CNY at about 3.7% a year

CNY 1,444

Sent to USD at about 2.5% a year, the account would show

USD 184 the tempting number

Brought back to CNY after the exchange rate moved -4%

CNY 1,227 what you can actually spend

Before tax, before fees, and before the risk that the exchange rate does something quite different next time. A higher rate abroad is only a higher return once it has survived the conversion back.

Go deeper

Also called

index tracker, tracker fund, world ETF, S&P 500 ETF, passive fund

Often confused with

  • Domestic shares: Part ownership of a company listed in your own country.
  • Mutual fund: A pool of many investors' money run by a manager who buys a basket of assets for a yearly fee.
  • Leveraged or inverse ETF: A fund that multiplies or reverses an index's daily move; over time the multiplication compounds losses fast.
Stock index ETF in China · wealth-coop