How To Invest in an Equity Fund

When trying to determine how to invest in an equity fund, there are certain steps that, if followed, will help give an individual a higher probability of making a sound decision.

The factors involved in the process range from determining the time horizon for the investment, the goal of the investment, and which of the many equity fund companies offers the greatest benefits for one’s particular circumstances. Once these questions are answered, the ultimate decision will be fairly straightforward.

The first step when planning to make an investment in an equity fund is to determine for how long one intends to leave the investment in place. The funds that are appropriate for an individual who will need to exit the investment with the next six months are different than those for an individual planning to leave the investment in place for ten years. The shorter-term investor will consider equity funds that are designed to produce results quickly – this usually means actively managed equity funds. The longer-term investor is more like to focus on more passive equity funds that typically charge lower fees and choose investments expected to grow over the longer-term.

The next step in the process is to set forth realistic goals as to what one hopes to achieve by making an investment in an equity fund. The specific equity fund that one chooses will differ significantly between an investor who is hoping to secure retirement assets and one who is trying to make immediate profits. Similar to the differences present between the long and short-term equity fund investor above, the more passive retirement-minded investor is likely to choose index funds that have lower fees and are less aggressive.

The final step in the process is to decide which of the various equity funds companies offers the most attractive alternative. Factors that will affect this decision include minimum investment amount, other banking services provided, access to research if one plans to make additional investments, access to investment professionals, and fee structures. Each of these factors alone is important when deciding with whom to make an equity fund investment, but when taken as a whole, these factors should be an integral part of the decision-making process.

After this task is completed, an investor will have narrowed things down to a specific family of equity funds. Given the decisions made in the first two steps, it should be easy at this point to make a final decision and begin to deploy one’s investment capital.


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