For the past weeks we’ve focused on Index funds, however, there are many other different types of funds that an investor should look at. This week I will, therefore, go through Equity, fixed income, balanced, hedge, and ethical funds.
By Viktor, co-founder of Bifrost - Feb 20 2019
An equity fund is a fund that primarily invests the fund's total assets in shares. The funds usually contain at least shares from 16 different companies. Equity funds may have different focuses, for example, British funds that only invest the money in shares from British companies and industry funds that only invest in shares in a single industry.
Fixed income funds
A fixed income fund is a fund that invests the fund's wealth in interest-bearing notes, i.e., in bonds and treasury bills. There are both short and long-term fixed income funds. The difference is that the short-term interest rate funds, called money market funds or liquidity funds, invest the money in securities with a shorter maturity than one year. The long-term fixed income funds, the so-called bond funds, invest the money in securities that last longer than one year.
Mixed funds are, as can be heard from the name, are funds that mix both shares and interest-bearing paper. There are various variations on blends, such as 50/50 that have half of each, or blends with two-thirds of shares and one-third of interest-bearing paper, or vice versa. An example of mixed funds is the generation funds that are becoming increasingly common. They have a high proportion of shares at the beginning and the more the pension approaches, the more interest-bearing paper and the smaller the shares it will be in the fund.
An index fund is a fund that follows the development of a particular index. For example, there are funds that follow the FTSE 100 index. These funds follow the development of the 100 most valued shares on the London Stock Exchange.
A hedge fund aims to profit even when there are tough times. Hedge means protection and hedging means protecting against unexpected changes in the market. The risk varies depending on which hedge fund you choose.
An ethical fund invests based on special ethical requirements. They can, for example, invest in shares from companies that work actively with sustainability, or refuse to invest in shares from companies operational in military, tobacco, and alcohol.