Equity Investment: The Basics

There are countless ways to invest your money - equity funds being just one of them. But what does this type of investment entail, and is it right for your financial goals?

To consider investing in an equity fund, it’s important to understand the basics of this type of investment. An equity fund is a fund that invests in stocks, which usually deals with a small amount of cash. Other types of funds - such as bonds, money funds and other securities - in contrast, deal with greater amounts of cash.

The general objective of an equity fund is long-term growth through capital gains. The funds objective could, for example, be achieved by investing in stocks with companies that have a long history of dividend payments. Moreover, equity funds can be chosen based on a specific sector of the market, or towards a targeted level of risk.

There are several properties that distinguish equity funds: style, whether it's from one country or multiple countries, size, and management style - whether it’s actively managed, or if it follows a stock market indices. There are also several types of equity fund types, including the value fund, growth fund, index fund, and sector fund, among various others.

Value funds invest in “value” stocks or companies that are older and more established, while growth funds invest in the stocks of companies that are growing very rapidly. Index funds invest in securities that follow a specific market index, and a sector fund invests in one area of an industry and offer high appreciation potential.

However, when investing in an equity fund, it’s important that you don’t base your financial decisions solely on the past performance of stock markets. That is, just because the stock market for a given fund has performed well in the past, doesn’t mean it will do the same in the future - and vice versa. It’s also very possible for stock markets which have done poorly in the past to suddenly perform much better. It’s also important to remember that, due to fluctuating share prices, you might not get your original investment back - so it’s vital that you’re aware of all the risks before making a big financial move like investment, and that you’re willing and able to face any financial consequences that may follow.

If you’re new to equity investment, it’s best to speak to an investment specialist regarding your financial goals. A professional can review both your goals and your current financial situation to help you determine if equity investment is right for you. If you do choose to invest in equity funds, a specialist can also point you in the right direction in terms of specific stocks to invest in.