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A stock fund, or equity fund, is a fund that invests in
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
s, also called equity securities. Stock funds can be contrasted with
bond fund A bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlyi ...
s and money funds. Fund assets are typically mainly in stock, with some amount of
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
, which is generally quite small, as opposed to
bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
s, notes, or other
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
. This may be a
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...
or
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout th ...
. The objective of an equity fund is long-term growth through capital gains, although historically
dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-i ...
s have also been an important source of total return. Specific equity funds may focus on a certain sector of the market or may be geared toward a certain level of risk. Stock funds can be distinguished by several properties. Funds may have a specific style, for example, value or growth. Funds may invest in solely the securities from one country, or from many countries. Funds may focus on some size of company, that is, small-cap,
large-cap Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...
, ''et cetera''. Funds which involve some component of
stock picking In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit f ...
are said to be actively managed, whereas index funds try as well as possible to mirror specific
stock market indices In finance, a stock index, or stock market index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performance. Two of the ...
.


Fund types


Index fund

Index funds invest in
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
to mirror a market index, such as the
S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The fund's performance tracks the underlying index's performance. The turnover of securities in an index fund's portfolio is minimal. As a result, an index fund generally has lower management costs than other types of funds.


Growth fund

A growth fund invests in the stock of companies that are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income.


Value fund

This is a fund that invests in "value" stocks. Companies rated as value stocks usually are older, established businesses that pay dividends.


Sector fund

A fund that invests in one area of industry is called a sector fund. Most sector funds have a minimum of 25% of their assets invested in its specialty. These funds offer high appreciation potential, but may also pose higher risks to the investor. Examples include gold funds (gold mining stock), technology funds, and utility funds.


Income fund

An equity income fund stresses current income over growth. The funds objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility stocks, blue-chip stocks, and preferred stocks. Option income funds invest in securities on which options may be written and earn premium income from writing options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.


Balanced fund

Balanced Funds invest in stocks for appreciation and bonds for income. The goal is to provide a regular income payment to the fund holder, while increasing its principal...


Asset allocation fund

A fund that owns stocks and a substantial amount of assets other than stocks is considered an asset allocation fund. These funds split investments between growth stocks, income stocks/bonds, and money market instruments or cash for stability. A fund that switches between asset classes based on predictions of future returns is called a tactical allocation fund. Other funds may maintain a more or less constant proportion of assets, due to the belief that such prediction is not reliable.


Fund of funds

"Fund of funds" implies that the assets of a fund are other funds. The other funds may be stock funds, in which case the original fund can be called "fund of stock funds". See
fund of funds A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A ...
.


Hedge funds

"Hedge fund" is a legal structure. Hedge funds often trade stocks but may trade or invest in anything else depending on the fund. This is done to reduce the risk of investments in stocks.


See also

*
Bond fund A bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlyi ...
* Money fund * Income fund * Target date fund *
Collective investment scheme An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
*
Investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be instit ...
*
Venture capital Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which h ...


References

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