Investing in equity funds are a lower-risk way to invest in the stock market with a group of investors so you can increase your profit. Equity funds can also extend overseas where you can invest in international equity funds. If you’re having a hard time figuring out what they are, this overview may help you out.
What is an equity fund?
An equity fund is a mutual fund that invests in stocks. They are sorted according to the size, the investment style of the fund, or the location of most of its assets. An equity fund is an easier way to purchase stocks through mutual funds. Multiple investors use money in a single fund that is run by a manager. This method is much simpler for someone looking to create a diversified portfolio at a fraction of the cost.
The advantage of an equity fund is that you can interact with the stock market with the risks and rewards of every other investor, but your seasoned stock selector manages your assets and has experience with the market. Unfortunately, the stock selector may not have your interests in mind. Also, if one stock does exceptionally well, the whole fund may not experience much change. This is dependent on how many investments are included in the equity fund.
What is an international equity fund?
As mentioned before, equity funds can be categorized by size, investment style, or the geographical location of most of the assets. Equity funds that have all or the majority of its securities overseas are considered a global or international equity fund. Some of the most popular international equity funds have their assets in Asian or European stocks.
International equity funds have a history of being more volatile than domestic investments due to the change in the country and political risks. If a country is in turmoil or experiencing great change, there is a chance that the international equity fund will be impacted. There is also a risk of the currency dropping in price due to the fluctuation of value with money around the world. This situation is referred to as “currency risk.”
However, while it may be riskier, there is also a chance to reduce risk through diversification. By putting your investments in many different stocks, you have less of a chance of loss if one stock drops in value. Much of the world’s economies are related to each other, and there is a chance that there is an economy that is doing better than your domestic economy.
Why invest in international equity funds?
The risk of investing in international equity funds is higher than domestic, so why do investors choose to invest in these stocks? The simple reason is that the growth in other countries allow shareholders to make a profit by jumping on a fast growing stock quickly such as cell phones, alternative energy sources, and infrastructure. The investment need in these areas has skyrocketed, and countries can get assistance from shareholders. In return, shareholders get profit as the demand increases.
