Equity funds

Equity funds are mutual funds that buy shares of listed companies. Their value moves with the stock market, so returns can swing widely from one period to the next. This page explains what these funds hold and how to read the return figures on the association's list.

What equity funds hold and how they behave

An equity fund pools money from many investors and uses it to buy shares, mostly of companies listed on the stock exchange. The fund manager decides which shares to buy and in what proportion. The fund's unit price rises and falls with the value of those shares.

Because shares are the main holding, the fund carries the risk of the stock market itself. Prices can fall sharply over short periods and recover over longer ones. A fund that tracks a broad index will behave much like that index, while an actively managed fund depends on the choices of its manager.

Costs matter over time. A fund charges a management fee, and some charge a sales load when units are bought or sold. These charges reduce the return an investor keeps, so it helps to read the fund's offering document before comparing options.

Time horizon and reading a single year of return

Equity funds suit money that will not be needed for several years. A common view is that an investor should be able to leave the money invested through a full market cycle, so that a downturn does not force a sale at a low price. Money needed soon is usually kept in lower-risk options.

The association's list shows the absolute return over one year. That figure compares the fund's value now with its value a year earlier and ignores the path in between. A strong year may follow a weak one, and a weak year may follow a strong one.

One year is a short window for an equity fund. A single figure says little about how the fund will behave over the period an investor actually plans to stay invested. Past returns do not indicate future results, and a high figure on the list is not a sign that the same will repeat.