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If you’ve always wanted to invest in the stock market but aren’t sure where to start, or you don’t have enough time to buy and sell individual stocks yourself, equity funds might be the answer.
Keep reading to learn more about this investment option.
Understanding equities and equity funds
So, what are equities? Equities are stocks, which are the "little bits" of a company. They're also called shares.
Having equities in a company makes you part-owner. If it does well, the company's equities become more valuable. When this happens, you can sell the equities for a profit.
But this means having to pick a company. You'll have to put time in researching and studying how likely it is to succeed. What happens if the company doesn't do well? The value goes down.
When you invest in equity funds, you pass on the work of buying and selling the equities to someone else. (For a fee, of course.)
A fund, as you might know, is an investment "vehicle." People invest their money in the fund, and a fund manager uses it to buy equities.
This way, you get to invest in several different equities than just 1 or a few. This means if some equities are not doing well, others could be doing better. So it evens out. You call this being "diversified."
Types of equity funds
There are different types of equity funds you can choose from. Many banks and investment companies offer these funds based on a certain theme.
They differ in whether the companies are small, medium, or large. The size of a company is measured based on the total worth of all its shares in the market. The bigger the company, the more stable it tends to be.
Other funds focus on companies in specific industries or those that fall under a certain trend, like green energy or artificial intelligence.
In some funds, the companies give people with equities a part of their earnings. You call these dividends.
Others charge comparatively lower fees because the fund manager does minimal work. These funds are passively managed.
The opposite are actively managed funds. With these, the fund manager aims to outdo a benchmark and provide relatively high returns. It could work, but it can also be riskier.
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