An Insight Into Equity Funds & Its Types

An Insight Into Equity Funds & Its Types
August 23 10:33 2017 Print This Article

An equity fund is a kind of mutual fund which is also known as a private investment fund. Most of the funding is done on a publicly traded common stock, but in cases where the investing is done on a private stock, it is termed as private equity. These equity fund assets are not traded in the stock market and are in fact an opportunity for fund managers to invest in businesses that would grow.

This concept is opposite to that of bond fund where the owners enjoy ever increasing profits and uses the shareholder’s money to give loans to companies and earn additional income from the interest payable by them. There are different types of equity funds that you need to look at and discuss:

  1. Equity Funds that are focused on Geographic Mandate

These refer to funds that are globally acceptable. It is further categorized under:-

    • International Equity Funds– These funds are invested in stocks outside the country.
    • Global Equity Funds– These are funds that are invested both within and outside the country but favours foreign stocks.
    • Worldwide Equity Fund– These funds function like the global equity funds but do not distinguish between domestic or international assets.
    • Domestic Equity Funds– These are funds that invest in stocks within the country only.

  1. Equity Funds focused on Market Capitalization

It’s a category based on the type of investments done. These are further sub-divided into the following categories:

  • Mega Capital Equity Funds– These funds are invested only in the largest companies that have large market capitalisation.

  • Small Capital Equity Funds– These funds are invested in companies with a small market capitalisation.

  • Micro Capital Equity Funds Here the funds are invested in small publicly traded companies worth a few million only.
  1. Equity funds focused on Investing Style

Based on the style of investment, we have the following equity funds:

  • Private Equity Funds – These funds are not used in the stock market and are invested only in private companies.
  • Equity Income Funds – These funds are invested only in business that promises a significant dividend often measured by a history of dividend increase of the company.
  • Index Equity Funds– These funds have the lowest mutual fund expense ratios.
  1. Industry Specific Equity Funds – These funds appeal to only those that want to invest their money in certain types of business only.

Other equity funds have multi cap investment style with no sector or market cap bias. This allows the fund manager to invest in companies with different market caps. Such schemes tend to adopt a top-down and a bottom-up investing scheme and is diversified across various industries and sectors.

Summary

If you wish to have a successful investment in equity funds, it is important that you first identify industries that have a sound management and prospects for good future growths. You must be thoroughly aware of the company’s policies as they are subjected to changes. Also, keep in mind the risk factors. The risks in such investments are moderately high and can affect your returns at the end of the term, so be cautious and invest wisely.

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James Carlos
James Carlos

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