Often, investors want to have some degree of certainty that the dividend-paying stocks they invest in will be of maximum benefit to them.
Instead of personally or individually investing their cash into various kinds of stocks, they resort to the use of equity income funds.
What is an equity income fund?
An equity income fund is a mutual investment fund which is made up of various income investments or dividend-paying stocks. These mutual funds are established to offer investors advantages that they would otherwise not enjoy.
Being funded with cash from various investors, these mutual funds invest in securities from well-established and creditworthy companies that have shown a good track record or consistency in paying dividends.
How or where do they invest my money?
Equity income funds hardly invest in startups or young companies. They are only interested in what they can guarantee to be safe and not too risky.
Some equity income funds have some form of criteria or benchmark for choosing where to invest. While some will consider only stocks with a certain level of dividend yields, others may consider only preferred stocks (stocks with certain characteristics), and some may even consider the types of issuers or credit ratings.
The numerous investment funds have their respective criteria for choosing investments but certainly, they all use the criteria which they believe is more appropriate.
How rewarding is it?
Since these equity income funds hardly invest in young companies but only the well-established and credit-worthy companies which are low risk investments, they do not enjoy very high returns on investment.
Equity income funds use a relatively conservative approach to investment. They do not invest in high risk ventures, hence returns are not very high. However, they offer higher returns than bond funds and money markets.
What to know before choosing it?
Moderately conservative investors prefer to use equity income funds. These funds make them enjoy a combination of moderate dividend income and capital appreciation.
Investors also love these funds because of the variations. Investors can choose from a variety of investment options provided by Equity Income Funds.
However, it is not advisable for short term investors since equity income funds have higher volatility than money market funds or bonds. Meanwhile, long term investors can enjoy higher returns than money or bonds markets can diversify bond portfolios and still enjoy some level of capital growth.
Just like other mutual funds, equity income mutual funds provide investors the advantage of instant diversification.
Equity income funds investors tend to enjoy some level of cheaper costs. These funds do not require so many transactions. They involve only a few transactions and trading fees. For this reason, investing in equity income funds becomes easier and less expensive as compared to making up an income portfolio by investing in various different stocks.
It is common knowledge that most investors do not have the time to manage their investment or even if they do, they may not possess the professional knowledge to make the best decisions. These equity income funds provide the best of professionals for managing the portfolios of these investors.