What is an equity fund and how does investment work?

Equity funds are investment funds focused on the stock market. Want to know more about how they work, how much they yield, and which funds are currently in demand? Read more about the subject with us.

---

Do you know what an equity fund is?

Everyone has heard of shares, the stock market and how they are one of the most sought-after types of investments among investors.

The equity fund is an excellent investment for those who want to invest in this market without having to deal directly with shares on the stock exchange.

Like any investment fund, this is an excellent option for those who want an investment that yields more than fixed income and want to diversify their investment portfolio.

But leave the choice of assets and all decision-making about buying or selling assets in the hands of a professional.

It is an excellent alternative for those who want the advantages that an investment fund can provide, but do not want to go through all the work and dedicate excessive time studying stocks, companies, financial market trends and everything else that is needed to be successful investing in this variable income asset.

In addition to diversifying your investment range, there are several advantages to investing in an equity fund.

Want to learn more about this type of investment? Stay with us and read about how equity funds work, what they are, how much they yield, and a brief list of the best equity funds of 2021!

What is an equity fund?

Before we get straight into the topic of equity fund what it is and how it works, Let's just recap what the actions themselves are, for those who don't yet know what they're about.

Shares are fractions of the share capital of a company that has a presence on the stock exchange, so when you invest in a stock fund, you are investing in parts of Brazilian companies that have part of their capital traded on the stock exchange.

That said, equity funds are investment funds where at least two-thirds of the invested amount of their assets (i.e., at least 67%) must be invested in the stock market, the stock exchange, and other assets that are in the same segment.

In other words, two thirds must be invested in assets such as share deposit certificates, subscription receipts, BDRs (Brazilian Depository Receipts, or receipts issued in Brazil for shares traded abroad), shares in stock index funds and even shares in other stock funds.

As for the remaining third, or 23% of the fund's assets, this can be used to invest in any other financial asset.

The equity fund membership term is what determines how everything will operate: what percentage of investment will be made in each financial institution, for example.

Or what type of risk the fund finds acceptable and what type of asset the fund will focus on.

Like all types of investment funds, the person who makes the decisions about all this type of thing, about the assets and all the technical part of the investment itself is the fund manager.

For investors, the only thing to do is choose which equity fund they want and invest.

Investors only acquire shares in the investment fund, and therefore only receive the income corresponding to the shares they own.

Since equity funds are variable income investments, they are not for every investor. Before investing in this type of fund, it is important to know what your investor profile is.

There are many types of equity funds, each with its own specific characteristics, but to choose an equity fund that suits your needs and priorities.

As an investor, the important thing is to know the What are equity funds and how do they work? before delving into the specific details of each subtype.

Equity fund: how does it work?

Like all other types of investment funds, equity funds also work as a collective investment, because several different investors invest jointly in the stock market at the same time.

The profits from this collective investment are then divided and distributed to each person, in proportion to how much each investor put into the fund.

The total amount of money that investors have invested in the fund makes up what we call the fund's assets, and the person who invests these assets is a professional manager.

And it is the manager who will decide what to do with this asset, always following previously established policies.

If the investments in which the manager invested the assets obtain a positive result, the fund's shares increase in value, and if the result was negative, the shares decrease in value.

It is worth noting that equity funds charge fees to remunerate the institutions that maintain the funds, and also to remunerate the fund manager himself.

There is also an administration fee, which is charged on the fund's assets as an annual percentage and is charged daily.

Equity funds can work in two different ways, with regard to how the fund is managed.

The first is passive management, where the manager usually invests in the same assets repeatedly, following a reference index.

The second type is active management, where the manager can invest in different actions with more freedom, seeking good opportunities in the stock market, using different strategies and techniques.

---

Does this investment pay dividends?

Some of the funds have a strategy of investing in stocks that pay dividends, focusing the fund's assets on companies that pay good dividends and have good indicators that they will do the same in the future.

But that doesn't mean that an equity fund pays dividends.

What actually happens is that the shares in which the equity fund invested its equity pay dividends to the fund, this profit from the shares is received by the fund, and not by the shareholders.

Upon receiving these dividends, the fund manager then reinvests the money and the value of the shares increases.

So, if you are a shareholder in a stock fund, your shares will rise because of the dividends paid on the shares in which the fund is an investor.

But you, the shareholder, will not receive the dividends directly. You earn from the appreciation of the shares and not from the dividends paid by the shares that the manager chose.

---

How much does it yield?

In fact, the greatest curiosity of all of us is to know how much does a stock fund yield, isn't that right?

The performance of the equity fund depends largely on the performance of the stocks themselves.

 The stocks chosen by the fund manager may perform well, and thus the return on the equity fund increases.

And since we are dealing with the stock market, the return is different depending on the performance of the shares, and on a daily basis.

Furthermore, as these are shares traded on the stock exchange, the volatility of the equity fund is higher than other types of investment funds.

The price of shares may vary suddenly, due to the volatility of the prices of the shares themselves.

The return always depends on the quality of the shares chosen by the fund manager, and whether he made a good choice, of quality companies with good prices, or of certain promising sectors, or with high appreciation potential.

There are many factors that can influence the performance of an equity fund, so it is difficult to say exactly and give a certain value on how much an equity fund yields.

---

Equity Fund Redemption – What You Need to Know!

The first thing we should know about the equity fund redemption is that each one has a different redemption period.

This period must always be described in the regulations of the equity fund itself, and specify the conversion date (date of calculation of the value of the shares for payment of the redemption) and the payment date (date on which the money will actually be available for redemption by the investor).

Some funds, depending on their unique characteristics, may have a redemption period of 10 days, 30 and possibly even 90 days.

Some funds have less liquidity than others, and therefore the redemption period can be quite long.

Furthermore, it is always good to know what taxes are levied on the redemption of a stock fund. It is always good to plan for this.

The tax we should be concerned about in the case of equity funds is Income Tax, which in the case of equity funds, is fixed at 15% on the value of all income, regardless of investment and redemption terms, and is always charged on each redemption of fund shares.

In the case of equity funds, there is no IOF (Tax on Financial Transactions) incidence.

And even better, in this specific case of equity funds, there is no famous “quota-eating” tax, which is the advance payment directly into the Income Tax fund, and is carried out twice a year.

---

Best equity funds for 2021

Let's talk about the four then best equity funds for 2021?

In our opinion, these are the most promising funds, especially because they are managed by large, experienced, reputable and successful fund managers. They are:

BB equity fund

Banco do Brasil needs no introduction and has been operating in this market for a long time.

Banco do Brasil's equity fund, BB Ações Dividendos, is one of the most promising equity funds for medium to long-term investors, and The initial application to enter this fund is R$ 200.00.

On Banco do Brasil's own website, they make it clear that this fund may experience fluctuations over time.

This fund has been in operation since 2002, and the management fee is 2% per year.

---

Clear Equity Fund

Clear is a brokerage specialized in helping traders and investors in Brazil.

It is affiliated with the XP Investimentos group, but has its own investment funds.

It has almost R$300 billion under custody, and more than 1 million active clients, together with XP Inc., and They manage various equity fund products, including real estate funds.

---

Vale equity fund

The company Vale, whose headquarters are located in the State of Rio de Janeiro, carries out activities in the mining sector.

It produces and trades iron, nickel, copper, manganese, iron alloys, cobalt, platinum and precious metals.

Furthermore, it is one of the largest companies in Brazil, with operations in several countries abroad.

Vale's equity fund is focused on shares of this company, counting on the good performance it has always demonstrated.

---

Rico Equity Fund

Founded in 2011, the Rico brokerage firm has become one of the largest, as well as one of the largest groups for financial education for investors.

The focus of the Rico equity fund is in high liquidity and diversification, and they have a platform that is simple to understand, and experienced and qualified professionals.

---

What is the best equity fund?

The best equity fund is the one that best meets the investor's needs and has the greatest potential for returns and appreciation of its shares.

If we were to consider only the technical aspect, such as market time and experience in managing equity funds, we would recommend the Banco do Brasil equity fund.

But always remember to research equity funds thoroughly before taking any action.

---

Conclusion

Equity funds are the best alternative for those who want to invest in the stock market, but do not want to or cannot spend time studying shares and the market.

Leaving this responsibility in the hands of a professional is a great way out for anyone in this situation.

The only point we should emphasize is that, with equity funds, the freedom to trade these shares directly does not exist.

So, perhaps for those who want to invest on their own, these funds are not the best option.

And of course, always remember to know what your investor profile is, to make it easier to choose the right investment.