Saturday, 24 October 2020

Equity Funds - How to Invest in Equity Mutual Funds

What Are Equity Mutual Fund?

Equity funds are, as the name suggests, funds or pots of money which are invested principally in equities (with a small portion in cash). Equities are essentially like shares - they are parts of companies that you can buy then you receive a dividend every year depending on that company's performance. 

If the company does well, more people want to buy the shares so the value goes up and vice versa. In this way, they differ from bonds in the sense that you rarely sell them for the value that you bought them for. Sometimes you sell them for more and sometimes for less.
Equity Funds - How to Invest in Equity Mutual Funds

Equity mutual funds are professionally managed mutual funds that invest in stocks, with the objective of long term growth through capital gains, rather than strictly dividends (although dividends have historically been responsible for a good share of the long-term return). 

Typically, mutual funds specializing in equities focus either on a group of stocks in a particular risk group or a particular business sector. They are usually further specified as a large-cap, mid-cap, or small-cap portfolio.

The demarcation between large, mid, and small-cap varies somewhat from one fund manager to another. When it comes to picking the stocks for their portfolio, equity fund managers may use a value approach, a growth approach, or a blend of the two.

• In the value approach, they look for companies that are undervalued on the market for their actual worth. These stocks often will increase in value when purchased in sufficient quantity, simply because of the implication of optimism from the actual purchasing.
• In the growth approach, the fund manager will look for stocks of companies that are growing faster than their competitors, or the market itself. Rapidly growing, established companies are prime targets.
• Some managers prefer to blend their approach, seeking stocks with both value and growth profiles, thus affording a little more protection to their portfolio.

Equity mutual funds are investments that are typically held for prolonged periods unless a downswing is detected. They offer no particular tax exemption when profitable, but if carefully selected, they can render sizeable returns. As with nearly all investment opportunities, risk and return are in inverse proportions. 

That is to say that low-risk funds will offer a lower potential return than a high-risk fund. Unless one is well versed in stock trading and has the time to monitor the market very aggressively, it is nearly always advisable to use a professional fund manager.

Investing in Stock Funds: Equity Mutual Fund

Most beginners to mutual fund investing have heard of the term equity mutual funds but aren’t quite sure what it means. Simply put, equity mutual funds are mutual funds that invest principally in stocks. Despite not knowing what equity funds are, most people who own mutual funds probably have an equity fund in their portfolio.

There are several equity mutual fund options that you can buy, depending on the level of risk you are willing to take on. Growth stock mutual funds, for example, consist largely of stocks for that have the potential to grow very rapidly and provide investors with large capital gains.

while on the other hand, more risk-averse investors may opt for a dividend fund that consists of stocks for low-risk companies that pay a regular dividend but don’t appreciate much in terms of the stock price.

Equity mutual funds can be broad investments that span an entire range of stocks. These funds are known as index funds.

The major advantage of index fund

  • You are instantly diversified.
  • Barring a crash of the entire market (which seems a bit more realistic these days).your money is relatively safe.
  • You also have the option to invest in actively managed equity funds that are managed by a fund manager that invests on behalf of the mutual fund owners on what combination of stocks they feel will provide the best rate of return for their investors.
  • Typically portfolio managers have a great deal of investing experience that they can rely on to provide better returns, but they also have very advanced systems that help them to better time the market.
  • Other equity funds may be more specifically tuned to a particular group of stocks such as green mutual funds. On the other hand equity funds can have a particular diversification strategy that spans a broad range of stocks, perhaps a mix of growth stocks and dividend stocks to give investors a mix of capital gains and stable returns.
  • Equity funds are a great way for investors, especially beginning investors, to get most of the benefit of investing in the stock market, but without the risk that usually accompanies it.
  • Equity funds can provide a nice level of diversification, or if you’re so inclined can provide you with the increased risk and reward that you’re looking for. The best part is that there are so many forms of equity mutual funds that there is sure to be one that is perfect for you and your portfolio.

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