13 October 2017

Essentials Of Equity Mutual Funds

Equity mutual funds also known as Stock funds are basically investments in equities or stocks as opposed to bond or money funds. These assets are mostly in the form of stock with a little bit of cash and not in bonds, securities or notes. Their basic objective is to achieve long-term growth which comes through capital gains. Sometimes dividends are also a part of the total return. The equity mutual funds target a specific area of the market and operate on a predetermined level of risk.

Distinguishing Features

There are many distinguishing features of equity mutual funds such as their specific style which can be value or growth and that they can be invested either solely in one country or in many countries. Moreover, these funds might be invested in a specific size of company.

Equity mutual funds have been designed basically to ensure safety and security to the investor in view of the major stock market upheavals that have taken place recently. Many brokerage and annuity accounts have not got back to normal even now. A number of investors were also relying on these funds for retirement income.

Two Types

Equity mutual funds are basically of two types. The first type is the domestic equity fund in which the mutual fund companies of Canada or the US invest in preferred shares of the corporations of their respective countries. Some of these funds are invested in specific areas such as small cap domestic equity funds or technology domestic funds. A professionally managed diversification portfolio is provided to the investor and parts of the funds can be traded on a daily basis. There is no management fee and the investment return is just as if the fund is held personally. The income through dividend, interest, and capital gains is taxable.

The other type is the International equity fund which works the same way as the domestic fund. It can concentrate on a specific area of the world such as Europe or any emerging market. Every thing else is similar to the domestic equity mutual fund except that since you are working in an international arena, the fluctuations of currency rates might impact profit or loss. Capital gains and dividends do not qualify for a dividend tax credit and income is taxable.

Most mutual fund investments are directly affected by the changing market conditions and the investor can gain or lose likewise. However, if an investor wishes to play safe and looks for adequate cover to take care of the risks involved, he will need to get an Equity Indexed Annuity. In the case of a mutual fund, you can earn the full amount of the gain and likewise lose the full amount of the loss. However, in the case of an equity fund, you will get only a part of the gain but will not lose anything. This operates through an insurance company which will share your gain but will absorb the whole loss.

Equity mutual funds like the above will ensure a slow return of your investment but you will be insured against any loss.