What is an Equity Fund?

by | Oct 26, 2017 | Financial Services

Equity fund is a mutual fund that principally invests in stocks. It can be actively or passively (index fund) managed. Equity funds are also known as stock funds.

Stock mutual funds can be categorised on the basis of the size of the company, the manner of investment of the holdings in portfolio and geography.

A market capitalisation decides an equity fund size, while the style of investment that reflects in the fund’s stock holdings helps to divide equity mutual funds in different categories.

Equity Fund is also segregated on the basis of whether they are domestic or foreign. These basically are broad market, regional or single-country funds type.

Some of the specialty equity funds target business sectors, like health care, commodities and real estate.

As an Ideal Investment Vehicle

Equity funds are ideal investment vehicles in many ways for investors who aren’t as well-versed in financial investing or do not have a large amount of capital to invest. Equity funds are practical investments for a larger population.

The factors that make equity funds most feasible for small investors are the lesser risk of a fund’s portfolio diversification and the comparatively small amount of capital required to buy shares of an equity fund. A large amount of investment capital is needed for lone investor to profit a similar degree of lower risk through diversification of a portfolio of the direct stock holdings. Pooling in together small investors’ capital allows equity fund to effectively diversify without burdening individual investor with large capital requirements.

The price of the equity fund is based on the net asset value (NAV) of the fund. A more diversified fund decreases the chance of negative effect of an individual stock’s downward price movement on the overall portfolio and share price of the equity fund.

Experienced professional portfolio managers manage Equity funds are, and their past performance are important for public records. Transparency, honesty and reporting requirements for equity funds are majorly regulated by the federal government.