Equity fund: what is it and how does it work?

Did you know that an equity fund can have a return above market indicators?

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Equity funds are excellent alternatives for investing in the stock market, without having to directly purchase company shares.

In this type of investment, you acquire shares and have the help of a manager to execute a good resource allocation technique.

To learn more about this topic, continue reading. We will explain how it all works.

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What is an equity fund?

When you invest in a stock fund, you are not acquiring an asset, such as a CDB (Bank Deposit Certificate) security.

You buy a share and leave the money in the hands of a manager, the professional responsible for executing the investment strategy.

When you invest in a stock fund, you will contribute an amount and make a profit based on the performance of the assets that make up that fund's investment portfolio, which is proportional to the amount invested.

The fund manager will analyze the selected assets daily.

It is important to remember that investment-related costs are subtracted from the fund's performance.

How do equity funds work?

An equity fund works in the same way as other investment funds.

To begin, the investor will acquire a share of the fund. The value will be added to the values of the other shares and the total amount will be invested in lots.

The entire process is carried out in accordance with the strategy chosen by the manager, the professional who will directly carry out the applications and analyses.

The advantage for the investor is that he does not need to buy shares directly.

As a shareholder, he only needs to buy the shares and entrust his capital to a manager.

For this reason, it is very important that the professional responsible for managing the equity fund has knowledge and experience in the market.

An equity fund must have at least 67% of its resources allocated to the stock exchange.

The portfolio of financial assets It can be made up of share deposit certificates, shares in share funds, receipts for shares traded abroad and, of course, the shares themselves.

Other 33% can be invested in various financial assets.

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Is an equity fund worth it?

If you are entering the financial market, it is very likely that you have already come across this question.

First of all, it is important for you to know that choosing a stock fund should go far beyond the return you want.

When it comes to variable income, past profitability does not mean high profitability in the coming years.

However, if a particular fund has a good track record and is well managed, the likelihood of you having higher profits increases considerably.

However, just like any investment, before investing your capital, you need to know the your investor profile.

Typically, equity funds are recommended for investors with a more aggressive profile, that is, someone who is willing to take risks in exchange for a higher return.

But if you have a conservative or moderate profile and want to diversify your portfolio, it is also worth considering this possibility.

Define the risk you are willing to take in exchange for greater profitability.

It is also necessary to take into account the cost involved in operations, because if the fund in question has high fees, the returns will be compromised.

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How to choose a good equity fund?

To make good choices and thus increase your income, it is important to follow some steps.

Here's what you need to do to acquire a good equity fund:

• Don’t be lazy about studying equity funds and the different types of strategies

• Analyze the historical profitability of equity funds

• Keep an eye on market volatility and know how much to invest

• Understand all the costs of equity funds (fees and taxes)

• Follow what your managers say about equity funds

• Use the funds as part of your portfolio

• Always focus on the medium and long term

What are the advantages of an equity fund?

Are you thinking about investing in a stock fund? Check out the main advantages of this type of investment:

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1. Professional manager

Professional management is, without a doubt, one of the main benefits of equity funds.

Often, due to the rush of everyday life, investors do not have the necessary time to analyze the selected assets.

As in this case, decisions are made by the manager, who will move the portfolio and carry out management on a constant basis, the investor does not need to worry so much about this!

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2. Dividends

Dividends are the portion of the net profit of a publicly traded organization.

They will be distributed among the shareholders, according to the number of shares each of them acquired.

The good news is that some equity funds pay dividends, which can be a very interesting option if you want to have a passive income.

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3. Investment diversification

One of the main challenges for individual investors is being able to diversify their asset portfolio.

And this is where equity funds become an interesting alternative. After all, they allow for greater diversification, which brings good returns to the investor who participates in an equity fund.

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4. More information about the market

Having reports at your disposal, as well as understanding profit projections and knowing what the main trends are, are some of the main advantages of investing in equity funds.

In fact, if you don't have much time to dedicate to these activities, you have even more reasons to think about equity funds as investment options.

Conclusion

There are several advantages to investing in equity funds and, in this article, you can learn about the main ones!

Always focus on the long term, diversify your portfolio and see the difference in your investments!