Investing what are Equity Funds

In stock market lingo, “equity” is just another word for stocks. An equity fund, in simple terms, is a collection or “basket” of stocks. It is a type of mutual fund. An equity fund usually has investments in a broad range of stocks with some money in cash. They generally are not invested in bonds or other types of financial instruments.

Mutual funds, including equity funds, are managed by a fund manager. These funds are for the investor who does not wish to choose his own stocks. It allows you to take advantage of the experience and expertise of the fund manager. If one were to try to choose stocks to invest in, the number and type of stocks you could purchase would be limited unless you had very deep pockets. Also, you would have to investigate each stock one by one.

By investing in an equity fund, you can make a modest investment of $2,000 and sometimes less, and you could be investing in some of the highest priced blue chip stocks. Your investment buys you a number of shares of the fund according to the Net Asset Value (NAV). The NAV would be similar to the price of a share of stock except it is a share of a whole basket of stocks.

Buying into an equity fund allows you to be as diverse or as specialized as you choose. Some funds are index funds. The fund manager buys a particular index of stocks like the Standard & Poors 500. This allows you to invest in the top 500 companies in the US by just investing in one equity fund.

However, beware of assuming that these big-ticket stock funds are the best way to go. Some specialized funds such as mining, commodities, and energy funds are doing much better than the blue chip stocks. Do your homework. You can check the history of any equity fund quite easily. Don’t just look at the numbers but look at the trends. Is the fund trending higher right now or lower? High numbers in the past don’t mean much in the present.

Mutual funds have fees but they tend to be much lower than brokerage fees if you were to buy the individual stocks yourself. As with any kind of financial investment, do your due diligence and get as much sound advice as you can.