Equity Funds and Index Funds Explained


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Even amateur investors today are aware of the several different kinds of mutual funds that one can invest in. What is more important, though, is to be able to accurately distinguish between different types of mutual funds in respect to one’s own financial needs, means and investment objectives. Once you have this much figured out, you will be able to narrow down your list to a handful of options, and make your final pick thereon. An important decision many investors find themselves having to make is whether to invest in an equity fund or an index fund. Here’s the lowdown on both.

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Equity Funds and Index Funds Explained

  1. 1.  An Equity Fund is a mutual fund which invests in equity securities. Another way to put this is that an Equity Fund invests in the stock (or share) market  Index Fund is a theoretical collection of assets that represent a specific market, either wholly or partially
  2. 2.  Equity fund buys ownership (or ‘equity’) in companies  The fund’s manager deigns this as likely to be profitable in accordance with his shareholder’s requirements  This is usually through the purchase of stock in public companies that are listed on the stock market
  3. 3.  Indexes can’t be invested in, obviously, as they are only hypothetical, referential tools  However, an index fund is a fund which aims to match the performance of a given financial index, rather than surpass it as is the method of equity funds.
  4. 4.  An equity fund is actively managed  A designated fund manager makes investment decisions for his clients  As the fund manager or a financial planner has the in-depth knowledge of the market
  5. 5.  Index funds are relatively simpler to operate, and do not warrant the need for professional oversight  the investors need to do is buy all of those securities and assets that are listed in the particular fund that they are tracking
  6. 6.  Equity funds, because of their ambitious nature, can be utilised for long term profits  However, the equity business requires a comparatively aggressive approach  Whereas index funds are less ambitious  That is why Index funds are less risky to invest in
  7. 7.  In several cases, index funds may invest in equity securities and equity funds may also track a given financial index with the object of mirroring its performance  However, in both cases, the investment will reap different results owing to the managerial differences between equity funds and index funds
  8. 8. Thank You Get more insights on Mutual Fund and Mutual Fund Investments here