What are equity funds? The term clearly explained
A mutual fund is a pool of stocks from different companies. They belong to the category of mutual funds. But what makes them special and what are the advantages of investing in an equity fund?
Character of the equity fund simply explained
Equity funds are issued by investment companies that administer and manage the funds. Through their investment, the investors participate in a large number of Shares and do not need to purchase individual shares.
The bundling of shares in an equity fund can be structured in very different ways. However, they are often created thematically and bundle stocks from one industry or one country. The risk for investors when investing in an equity fund is lower than with individual shares, since it is spread across a large number of shares in the fund. However, equity funds are also subject to fluctuations in value.
An equity fund is issued by a fund company whose fund manager fund actively manage to outperform the general market. However, the investor capital is protected as a special fund against insolvency of the fund company and is managed separately from the company's assets.
Equity funds also generate returns through price gains, and dividends can also increase returns. Profits are either distributed or reinvested.
Since the equity fund is actively managed, the fund incurs relatively high fees, which amount to around 1.6% of the investment amount per year. Withholding tax, solidarity contribution and possibly also church tax must also be paid for the profits.
Investing in funds or ETFs are two different asset classes that...
Advantages of investing in an equity fund
If investors invest in an equity fund, they leave the portfolio management to the fund managers, who select the stocks for the fund and buy and sell them with the aim of increasing returns maximize. Investors therefore have to decide on a fund, but they do not have to analyze and monitor the individual markets and stocks, as this is done by the fund management.
Shares in an equity fund can also be sold again at any time. The chances of high returns are also higher with equity funds than with real estate funds or even bond funds.
Disadvantages of equity funds
The fees for equity funds are significantly higher than for other asset classes, such as e.g. B. ETFs. Also, not all companies in the portfolio pay dividends. Selecting the right fund is not easy and requires good knowledge of its investment structure and performance. Equity funds are also subject to the risk of fluctuations in the value of the shares they contain.
An investment in an equity fund offers a good alternative to other forms of investment for many investors who do not want to or cannot deal intensively with daily stock market movements. However, choosing the right fund is not always easy and even good funds often only produce interesting returns after a few years.
