Types of Equity Funds

These are mutual funds that invest their assets in the common stock of corporations. There are different types of equity funds. Equity mutual funds are the most common type of fund traded and held.

GROWTH FUNDS. Primarily, growth funds hold the common stock of more proven, larger growth-oriented corporations. These funds are akin to growth stocks. The goal of growth funds is to provide the investor with longer-term growth and appreciation, rather than give the investor a sizeable income from dividends and capital gains distributions.

AGGRESSIVE GROWTH FUNDS. Here, the purpose is capital appreciation, rather than income. Aggressive growth funds represent substantially more risk than regular growth funds because they are apt to invest in smaller companies, newer industries, start-up firms, etc. They may also make a practice of holding fewer companies in their portfolios than the average growth fund. Aggressive growth funds may also use different types of equity investments, such as option writing, in the portfolios . They are the more speculative funds when comparing regular growth funds to aggressive growth funds.

INCOME EQUITY FUNDS. These funds are driven to invest in larger, stable corporations that have long histories of sizable dividends, thus providing the investor with the ability to derive income from the fund. Since the goal is not capital appreciation, the associated risk for income funds is relatively lower than that for growth or aggressive growth funds.

GROWTH AND INCOME FUNDS. A mix of the income equity and growth funds, these funds strive to invest in firms that will show positive growth and income (dividends) rates in the future, as well as providing some good dividend income in the present. The risk level for these funds tends to be moderate because of the balance between the growth and income factors.

OPTION-INCOME FUNDS. These funds tend to invest in the common stock of firms that pay reasonable current dividends. However, they also try to increase the income to investors by writing call options on the stock they hold.

GLOBAL EQUITY FUNDS. Global funds invest in the common stock of both foreign and U.S. companies.

INTERNATIONAL EQUITY FUNDS. International equity funds are regular equity funds that invest solely in the common stock of foreign companies.

SMALL-CAP FUNDS. Small-cap funds are made up of smaller, lesser-known companies that the mutual fund thinks show great promise and will grow substantially over a few years. While many people think that small-cap stocks have performed better than other sectors have, small-cap funds, like the underlying small-cap stock, have fewer capital resources, and are known to be more volatile than their larger counterparts.

PRECIOUS METALS FUNDS. Rather than investing individually in companies that produce precious metals, or gold-mining companies,

Special note: It’s important to distinguish between international and global mutual funds. Global funds invest in American companies, as well as foreign companies, whereas international funds invest solely in foreign companies. mutual fund companies have come up with precious metals funds. Theses funds can be viewed as alternates to holding gold or other precious metals directly. The prices of the underlying stocks tend to move with the market prices of the precious metals the firms produce, instead of the stock market itself. These funds may be considered sector funds.

SECTOR FUNDS. Sector funds invest in the companies that make up different market segments and industries, such as health care, utilities, natural resources, etc. By investing in these funds, investors can direct a portion of their investments in fields they wish to invest in. For example, if you wanted to concentrate some of your investment dollars in the financial services area, rather than researching and picking a fund that has a high percentage of stock in that area, you could purchase a sector fund.