Banking Term: Equity Funds

Definition:- An equity fund is an open or closed-end fund that is invested in stocks. The objective of equity funds is long term growth through capital gains. Specific equity funds may focus on a certain sector of the market at a certain level of risk. But in general, equity funds pursue one of these three primary goals: -

• Income
• Capital Gains
• Both

Equity funds have certain benefits that other funds don’t have, are as follows: -

Advantages:- There are following advantages in equity funds.

i. Capital Appreciation: - When a company/firm earns profit & shows a substantial growth, then they opt to reinvest the profit through increasing market share, product developments etc. In this condition, the price of the stock increases and investor’s capital is appreciated.

ii. Diversified portfolio: - It facilitates investors to buy stocks of different companies at different times of various sectors. The benefit of such portfolio is that if any company’s share shows negative output, then such losses can be made up by other company’s stock profits.

iii. No brokerage or commissions: - there are fund houses which usually include bank fees, commission, brokerage etc. for the offered services. It results in reduction of investor’s profit whereas in equity funds, brokerage is neglected. On longer period of time, it becomes a major plus profit.

iv. Dividend: - Dividends are the form of regular income earned by investing in blue chip companies. These companies are liable to give returns in good or bad both situations. It will prove more beneficial with diversified portfolio to return benefits throughout years.

v. Liquidity: - Stocks can be traded everyday in any stock exchange in the world and investors get their money by selling stocks within a week.

vi. Professional Management: - All types of investment are subjected to market risk. That’s why, investors are scared of putting money in stocks due to inadequate knowledge of the right time to invest & withdraw capital, experience. So, need of professional is realized. Equity funds have an inherent design to tap the professional expertise to manage their investments.