Equity Funds Offer Many Versions To Suit The Investor's Needs
Within each category of mutual funds, there are nuances and subcategories that make one type of mutual fund different from the others. Stock funds, which are also known as equity funds, come in different shapes and sizes. Each type has its benefits and its detriments and each person who is choosing to invest in equity funds should make sure that they are well-informed before making a decision. The type of stock fund that is chosen will have different characteristics and different amounts of returns depending on the stock in which it is invested.
Equity funds can be divided or categorized in different ways, and one method is by strategy of investment. One type of equity fund is called value funds, which are funds that have money that is invested in companies that are offering better value than what they are given credit for. These companies may either be ignored or not paid attention to but they can do very well and be very safe companies. Growth funds are those which invest in stocks that appear to be growing very quickly but these types of equity mutual funds are much more risky. Even though the company can be growing quickly during one year, that is no guarantee that it will continue to be successful and it can just as easily plummet. A third type is called blend funds, which are composed of a combination of both growth and value funds. Equity funds can also be categorized by size. Small-cap funds are those in which money is invested in companies whose value is less than $1 billion. Mid-cap funds are those, which invest in companies whose market value is from $1 billion to $9 billion. Large-cap equity funds are those in which money is invested in companies that have a value of more than $9 billion, and these companies generally pay a large amount of dividends to investors. The market value of these companies is determined by taking the current market price of the company's shares and multiplying it by the amount of shares that are outstanding.
There are various other types of equity funds that can be chosen from. Index funds are composed of a group of stocks that embody a certain market sector and a few stocks can be bought from each company in that market. There are also several types of international equity funds such as country specific funds that invest in one region or country's stocks, global funds that invest in international and American stocks, emerging market funds that invest on developing countries, (somewhat like a growth stock), and foreign funds that invest outside the United States. Sector funds choose a sector of the market or a specific industry in which to invest, such as technology or medicine.
Stock market funds offer the most risk but they generally also offer the largest amount of return on the investment. In contrast, bond mutual funds and money market mutual funds offer lower amounts of returns, generally only one or two percent above inflation. Stock funds, even though they have flexibility because they are based on the market, usually do well over a long period of time, despite the ups and downs.
|
