Equity and Equity Funds

This post defines what is an Equity and Equity Fund.

What is an Equity?

An equity is an instrument which represents part ownership in a particular company. To achieve the purpose of diversification, the majority of investors purchase many small amounts of different equity shares in several companies. These equity shares are traded on a daily basis on national stock markets around the world. Equity as a security has a higher volatility than bonds but it also has a higher return associated with it.

What is an Equity Fund?

An equity fund is a financial structure made up of several distinct company shares which may share common characteristics like size, value and growth. The characteristics of the selected company shares will entirely depend on the objective of the equity fund and strategy of the fund manager. These are outlined in the fund prospectus.

A major advantage of equity funds over individual company shares is wide diversification, meaning that an investor can participate in owning over hundred different company shares with the purchase of even one unit in a particular single equity fund. Diversification in an equity fund also enables an investor to achieve similar/higher returns with much lower risks than through investing in a single company share.