What are equity funds?
An equity fund is also known as a stock fund and is a mutual fund that invests in stocks / equity securities. The fund is passively or actively managed by an individual, a group or a financial institution. It can be open or closed, and allows investors to buy a basket of stocks in cases where it would have been hard to buy individual securities. This means you buy ownership in a business, which is what equity implies, through purchasing the publicly traded common stock.
Why would you be interested in an equity fund?
Equity funds are great options for beginners of the fund diversification options and the simpler, less expensive process than investing in every individual stock in different funds’ portfolios. Investing in an equity fund through a financial institution also means there will be professional that actively manages your the fund on behalf of you and other clients.
Types of equity funds
Many financial institutions and banks have their own ways of describing the equity funds they offer according to how they structure their funds. Some of the more common equity fund types that you will find are:
- Private Equity funds
- Aggressive growth funds
- Growth and income funds
- Market cap funds
- Dividend growth funds
- Sector and industry specific funds
Aspects of the equity fund to keep in mind when choosing one
Time frame of the investment
It is important for you to choose a time frame that will yield the results you are looking for. If you are looking at a fund that will yield a steady, medium-risk return, investing for a period of 5 years will most likely be too short amount of time. It is therefore important to invest for the appropriate amount of time according to the risk profile you are taking on. Time frames usually range from 5 to 20 years and up.
There is always a risk attached to investing your money. Investments will fall in either low, medium or high risk profiles or in some combination of two of them.
The fee surprise that you should be smart about
The main goal with an equity fund, as with any other investment, is to get more out than you put in. In an ideal world, you are leveraging massive companies and markets to make back what you would never have been able to in your sole capacity. Due to the nature of managing equity funds and pushing for high returns, the fees you pay on your returns can many times be an unpleasant reality if you didn’t anticipate it. If you manage your funds on your own, this won’t really be a problem, but few people have the ability or time to do so. Any fund that promises returns that come from medium-risk and up, should make you listen attentively. Following this is the deep research on what you will pay in fees on the returns you realize after the term of the investment.