An equity fund can be a mutual fund or an exchange-traded fund (ETF) that invests in equities (stocks). Thus, equity funds are also called stock funds. These funds are aimed at achieving:
-
Long-term growth through capital gains
-
Healthy return on investment (ROI) through dividends
Equity Fund: Unique Characteristics
Since equity funds have high exposure to the stock market, they carry substantial risks. However, this risk comes with the potential of high returns. Other characteristics of equity funds are:
-
Have a specific risk orientation. For example, they could be focused on growth or value.
-
May be focused on the size of the companies. They could invest in the stocks of small, medium or large-cap companies.
-
May be focused on a certain market sector.
Equity Fund: Types
Equity funds can of the following types:
-
Index funds: These funds invest in securities to mirror a market index, such as Dow Jones or the NASDAQ. The buying and selling of securities by index funds mirror the composition of the selected index. These index funds have lower management costs and risk than other funds.
-
Growth funds: These funds constitute of the common stocksof proven, larger growth-oriented corporations. Growth funds are ideal for investors looking for long-term growth, instead of large dividend income.
-
Income funds: The focus of these funds is current income. Thus, they invest in the stocks of utility, blue-chip and other companies that have a long history of healthy dividend payouts.
-
Balanced funds: These funds strive to invest in companies that provide good dividend in the present and promise healthy growth and income rates in the future.
-
Option income funds: Option income funds tend to invest in stocks that pay reasonable dividends. However, these funds also write call options on the stocks held by them to improve the income.
-
Sector funds: Investors oriented towards a specific sector or industry should opt for these funds. Although these funds generally yield high returns, they are the riskiest of all funds, since the returns depend on the performance of a specific sector.
-
International equity funds: These funds are solely focused on the common stocks of foreign companies.
-
Small cap funds: These funds comprise of the stocks of smaller, lesser-known companies that the funds believe have great potential for growth.
-
Global equity funds: These funds invest in thestocks of both foreign and US-based companies.