Let's look at equity funds. What is it and how to use it

Leonard Pokrovski
Joined: 2022-07-25 12:14:58
2023-09-21 21:47:48

Let's look at equity funds. What is it and how to use it
An equity fund is an investment fund whose underlying asset is shares and which invests more than 50% of its capital in shares of various foreign and domestic companies.

The essence of the work of a stock fund is simple: the fund accumulates investors' funds and transfers them into the hands of a management company, which distributes these funds on a trust basis.

Almost all funds use only one type of asset, stocks or bonds, but there are also mixed funds.

The main advantage of such funds is that the investor does not need to deal with issuers on his own, which reduces the level of risk and potential losses.

Equity funds have various organizational forms:

  — Mutual Fund
  — Joint stock investment funds
  — Exchange-traded mutual funds
— Pension funds
--Insurance funds
Mutual Fund
A mutual fund is a financial vehicle that pools assets from shareholders to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.

Most mutual funds are part of larger investment companies such as Fidelity Investments, Vanguard, T. Rowe Price, and Oppenheimer. A mutual fund has a fund manager, sometimes called its investment adviser, who is legally obligated to work in the best interest of mutual fund shareholders.
* A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
* Mutual funds give small or individual investors access to diversified, professionally managed portfolios.
* Mutual funds are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
* Mutual funds charge annual fees, expense ratios, or commissions, which may affect their overall returns.
* Employer-sponsored retirement plans commonly invest in mutual funds.
Joint stock investment funds
A joint stock investment fund is a legal entity in the form of an open joint stock company, the exclusive activity of which is fixed by its charter as investing in assets in line with standards set out in its investment declaration.
The investment declaration must be approved by the general meeting of shareholders of the joint stock investment fund (but the charter may reserve this power to its supervisory board).
The property of the joint stock investment fund is divided into property designated for investment (investment resources) and property designated for supporting the operations of the fund.
The investment resources of the joint stock investment fund are transferred to a management company on a trust management basis.
Trust management means that the management company manages the investment resources on behalf of the joint stock investment fund, must hold the assets separately to its own and, in its dealings with fund assets, must specify that it acts in the capacity of trust manager.
A joint stock investment fund is not entitled to issue securities other than ordinary registered shares.
Exchange-Traded Mutual Fund (ETMF)
An exchange-traded mutual fund (ETMF) is an exchange-traded security that is a hybrid between an exchange-traded fund (ETF) and an open-end mutual fund. It may also be known as an exchange-traded managed fund.

ETMFs allow a standard net asset value (NAV)-based mutual fund to trade in real-time on a stock exchange, similar to the trading of a stock or ETF. ETMF intraday trading prices will be directly linked to the fund’s next end-of-day NAV. All bids, offers, and trade prices will be quoted in terms of premium or discount to the end-of-day NAV (like NAV+$0.02 or NAV-$0.05). For each trade, the premium or discount to NAV is locked in at trade execution time and the final transaction price is determined once NAV is calculated at the end of the day.
* Exchange-traded mutual funds (ETMFs) are mutual fund shares that are listed on exchanges where ordinary investors can buy and sell them on the secondary market.
* ETMF prices are linked to the fund's next daily NAV, rather than determined in the market at the time of trade execution like ETFs are.
* Among the first and largest issuer of ETMFs is Eaton Vance's Nextshares.
Pension funds
The most common type of tradition

national pension is a defined-benefit plan. After employees retire, they receive monthly benefits from the plan, based on a percentage of their average salary over their last few years of employment. The formula also takes into account how many years they worked for that company. Employers, and sometimes employees, contribute to fund those benefits.

As an example, a pension plan might pay 1% for each year of the person's service times their average salary for the final five years of employment.
  So an employee with 35 years of service at that company and an average final-years salary of $50,000 would receive $17,500 a year.
* Traditional defined-benefit pension plans are vanishing from the retirement landscape, especially among private employers, but many still exist.
* Pension plans are funded by contributions from employers and occasionally from employees.
* Public employee pension plans tend to be more generous than those from private employers.
* Private pension plans are subject to federal regulation and eligible for coverage by the Pension Benefit Guaranty Corporation.
Insurance funds
Insurance funds, active in many countries’ health systems, are key players in funding health services. Several European countries have enabled health insurance funds to finance preventive work of public health services. This has huge potential for combining well-planned health promoting services and sustainable financing. It also offers a range of different sectors the opportunity to become involved in aligning their work towards common targets.
In addition, the potential savings for insurance funds are a positive cycle that can lead to further increases of finance available for preventative and health promoting measures. Other institutional investors and funds, such as pension funds, are another potential source of increased funding that has the potential to work across sectors and create positive feedback through improving health and wellbeing, increasing their return on investment, and boosting the pensions for an active aging population.
The largest funds in the world:

▪️Government Pension Fund of Norway - Norway's pension fund - the largest sovereign fund in the world
▪️Vanguard Total Stock Market Index Fund Investor Shares is the largest mutual fund, including companies of various sizes.
▪️The largest ETF is SPDR® S&P 500 ETF Trust (SPY).

How can an investor choose the right fund?

It all depends on the investment horizon and the desired return. General points to consider when choosing a fund include:

✔️Diversification - reduces the level of risk significantly;
✔️Capitalization - funds with low capitalization have a high risk of disbandment;
✔️Management fee - it is better, of course, to choose funds with the lowest possible commission if, according to all other parameters, for example, when comparing two funds, the investor is satisfied with everything.


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