what is the difference between index funds and equity funds?


what is the difference between index funds and equity funds?

In: Economics

An equity fund is one that invests in stocks, also called equity securities. The people managing the fund decide which stocks to invest in.

An index fund is one that invests in every stock in an entire index, like the Dow Jones or the S&P 500. If you invest in that fund, it’s like owning a piece of every stock on that index.

So an index fund may also be an equity fund if it invests in stocks, but not every equity fund is an index fund.

Index funds are a form of equity fund.

An equity fund invests your money. It can do this actively, by trading your money according to the markets movements. It can also do this passively, using index funds (such as ETFs).

That’s about as simple as it gets, but I can get much more complicated if they start using different financial instruments, unfortunately.

Equity funds tend to buy ownership in something, usually stock or real estate. This is in contrasts to bond funds that tend to buy debt, such as government bonds or mortgages.

An index fund is a passive fund where it attempts to match an index. For example, the S&P 500 is an index that does a weighted average of the stock price of the top 500 companies by market cap on the New York Stock Exchange. An index fund will try to buy stock so that its holdens match that of the S&P 500. With an index fund, human decision making is minimal as any trades the fund makes are mainly to continue matching the index. This is in contrast to an active fund, a more traditional fund where humans actively make decisions about what to buy and sale.

An index fund may be an equity fund, like many S&P funds are, but it can also track bonds or a mixture.