Equity mutual funds can be categorized in many ways. Aside from basing on market capitalization and geography, they can also be categorized according to their investing styles.
Of course, it is important to know how these funds invest in stocks because you’re going to pour your money into them, trusting them to increase your wealth via their chosen style. Read on to learn more about how an equity mutual fund invests in different ways.
Dividend Growth Funds
These kinds of funds are those that invest in different kinds of business ownerships. These business ownerships are typically known for increasing dividends per share at a faster pace when compared to the overall speed of the stock market as a whole.
Among investors, there are many popular ways to reap great amounts of money by using a dividend growth strategy. Sometimes, the strategy can let them exceed their higher-yielding counterparts. More interestingly, there are instances when these funds become excellent buy-and-hold investments.
Equity Income Funds
Equity income funds are similar to the first one in the way that it invests in business ownership. The difference is that equity income funds gravitate towards those businesses with a large amount of dividend.
To know if the dividend is weight enough, you can try and look at the dividend increase history. In addition, you can utilize both the absolute and the relative dividend yield and conservative dividend coverage ratios as reference for the measurement.
Index Equity Funds
These funds are just like typical equity mutual funds. However, the unique character found in these funds is that they try to mimic or imitate a specific index that they follow or track. Such indexes include the Dow Jones industrial Average or the Standard and Poor’s 500.
Even if this is not always the case, index equity funds are usually the ones sporting the lowest mutual funds expense ratios.
Private Equity Mutual Funds
Unlike the mutual funds that trade publicly traded companies, private equity mutual funds, as the name suggests, are those that invest in privately held companies that do not trade stocks on the stock market. More often than not, these companies are set up as limited liability company, or LLC.
Once these companies are established, they will be infused with millions or billions of dollars. Such companies can effectively raise money by issuing bonds, as well as taking over other businesses that the management deems can be improved and enhance.
Sector/Industry Specific Equity Funds
These are much like equity index funds. The difference is that these types of mutual funds track sectors or industries, which are very specific parts of the economy. These funds try to mimic or imitate a certain sector or industry.
Such sectors, industries, or areas include discount retailers or property and casualty insurance groups. Although not as popular or big as the other mutual funds, these funds are considered a very nice options for investors who wish to invest in only a specific kind of company, business, or stocks.
