Thursday, January 11, 2007

Stock funds

Stock funds are funds dedicated to the purchase and sale of stocks. The strategy of the fund can be either growth or income.

A growth fund is a fund that purchases stocks of companies that have strong growth potential. These companies pay little or no dividend. Distributions are mostly capital gains. These unit trusts are best for long-term investment due to the capital appreciation. On the other hand, these unit trusts are riskier than income trusts.

A income fund invests in stocks for their dividends. Usually, the return on these funds are made up of dividends received. The stocks of these companies are preferred for their income rather than growth. These unit trusts are good for the conversation investor who prefers current income over capital gains.

Some stock funds are dedicated to specify industries (e.g. high tech) or to specify country‘s stock (e.g. an Argentina fund). Because these unit trusts are highly-selective and highly-specialized, they are less diversified. In the case of unit trusts specializing in industries, the negatives affecting the industry cannot be offset. In the case of country unit trusts, the political and economic risks cannot be quantified easily, especially in the case of third world country. As a result these unit trusts are good for investors who prefer high risk.


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