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What are Equity Mutual Funds?

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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 05 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Equity mutual funds are a type of mutual fund that invest in stocks as the underlying asset. This is one of the most common types of mutual funds that is available in the financial industry. Equity mutual funds have a large potential for growth, utilize professional management, can utilize different investment strategies, and have expense ratios.

There are many different types of mutual funds available for investors to put money into. The equity fund invests only in stocks. Investors will pool their money together and the mutual fund will use it to purchase thousands of different shares of stocks.

Equity mutual funds have more potential for growth than many of the other mutual funds available. Stocks represent ownership in a company and the owners of a company are going to be able to profit the most when it does well. Stocks have been known to double and triple in value, which provides some very nice potential for investors. With an entire portfolio of stocks, investors can realize fantastic gains on occasion.

One of the big advantages of investing in equity mutual funds is that they benefit from professional management. Professional money managers are in charge of making the individual investment decisions for the group of investors. The investors are simply going to provide the money for the fund manager to work with. The fund manager will then analyze all of the different stocks available in making a decision as to what stocks to invest in.

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The fund manager is also going to decide when to sell the stocks in the portfolio. This creates a passive form of investment for investors. The investors do not have to worry about anything except investing money into the mutual fund.

Equity mutual funds can utilize a number of different investment strategies. Some equity funds will focus on growth stocks. They will attempt to identify companies that are poised for massive growth and take advantage of this growth. Other mutual funds are going to try to identify stocks that are undervalued. Some mutual funds will use a mixed approach of growth and value investing.

When investing in an equity mutual fund, investors will have to pay an expense ratio. The expense ratio is the amount of money charged by the mutual fund company in order to pay for operating expenses. This money reduces the amount of return realized by investors.

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