While an equity fund is simply a fund that invests in stocks, there are various types of equity fund types to invest in. To effectively choose an equity fund that’s right for you, it’s first vital that you understand these different types of equity funds. Some of the different types of equity fund types available to investors include: the growth fund, value fund, index fund, sector fund, income fund, balanced fund, and asset allocation funds. What’s more, each type of fund is different from the next in the way it functions and the results it delivers in terms of return on investment.
So it’s ultimately wise to make an informed decision when it comes to investing in any type of fund. When many people look to invest, they’re drawn to do so with companies that demonstrate rapid growth. For these investors, there’s the growth fund. Growth companies tend to re-invest a significant amount of their profits for research and development, and support investments that are based on generating capital gains rather than income.
Value funds, on the other hand, invest in “value” stocks – stocks with companies that are usually older and more established which allows you to invest and profit. These types of funds tend to be more stable, but don’t usually demonstrate the rapid movements of growth funds. Another type of fund investment – the index fund – follows a market index rather than being actively managed. This type of fund has a low management fee, but also usually has a minimal turnover of securities.
Meanwhile sector funds invest in a particular area of an industry – such as gold or technology funds – and offer high appreciation potential. However, these equity funds can also pose a higher risk to the investor.
Another type of equity investment has to do with the income fund. Income funds focus on current income over growth – an objective that can be achieved by investing with companies that have a proven history of dividend payments. The balanced fund, however, invests in bonds for income and stocks for appreciation. Asset allocation funds divide investment between income stocks, growth stocks, and cash or money instruments. Advisers and fund managers then switch the percentage of holdings in each category based on how that group performs.
If you’ve invested in funds before, you might have an idea of the type of equity fund you want to invest in now. However, if you’re new to equity investment, it’s always best to seek professional advice from an investment specialist. An adviser can take into account your unique financial goals to suggest an investment fund that’s right for you. He or she can also outline any potential gains and risks of equity investment, ensuring you’re aware of what investment entails before making any financial moves.
Many people today are familiar with equity funds – funds that invest in equities, or, what’s commonly known as stocks. However, the term can also cause confusion, considering the various types that are available on the market – each serving a unique purpose. So, what are the various types of funds available to consumers, and how can you find one that’s right for your financial goals and needs?
To begin, it’s important to differentiate between equity funds and mutual or exchange-traded funds. Equity funds are usually held in stock or cash, as opposed to notes, bonds or other securities – which is typically the case with mutual or exchange-traded funds. The intention of an equity fund is capital growth over a long term, inclusive of dividends and interest, while other types of funds aim to achieve capital growth over a shorter amount of time. Specific funds of this type might also concentrate on a particular sector of the market, or may be tailored toward a certain level of risk.
Some of the various types of equity funds include: index funds, growth finds, value funds, and sector (specialized funds). An index fund invests in securities to mirror a market index, with minimum securities turnover. As a result, index funds generally have lower management costs than other types of funds. Growth funds, however, invest in company stocks that are growing rapidly and typically focus on generating capital gains rather than income. Value funds invest in “value” stocks, with the typical value fund clients being older, more established businesses that pay dividends.
And finally, sector funds track one area of industry, with a minimum of 25 per cent of a company’s assets invested in its specialty. This type of fund offers high appreciation potential, but may also pose a higher risk to the investor. Examples of sector funds include gold funds (gold mining stock), technology funds, and utility funds.
When considering investing in an equity fund, it’s always a good idea to equip yourself with knowledge on the options that are available to you, as well as what each option entails. However, one of the most effective ways to determine which type of equity fund is right for you is to speak with a qualified specialist. A specialist can ask you all the right questions with regard to your financial goals and needs – not to mention take into account important aspects of your business, such as its ‘cap’ size – to ultimately point you in the direction of a suitable fund investment option.