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In a simple word, mutual fund investing money to large, medium, small companies. In each sector, it will invest on companies from various sectors. through diversification, reducing risk of losing capital by problem with any type of companies or sector.
When the term “fund” is used, it typically means it is a form of mutual fund. The other two terms explain the way that the mutual fund is investing. “Equity” tells you that the mutual fund is investing in the stock of companies, which is called equity. This differentiates it from those funds that may invest in bonds or another strategy. “Diversified” should reflect that the fund is investing in companies from a broad range of sectors. For example, financial, energy, health care and others sectors all in one fund. However, diversified can also mean a number of different companies all in one sector – i.e.: just bio tech stocks. Fortunately the mutual fund you are reviewing should spell it out, up-front exactly how and where it invests. Keep in mind that this is your money, so read up and ask questions. Good Luck!
The word equity itself enumerates RISK. Any equity related investment has RISK ELEMENT high in it. The funds are subject to market risk.
It is called Diversified coz, the fund managers try their best to diversify the risk for the investor. Diversified risks provide a cover to the investor and that is an advantage. Advantages in EQUITY DIVERSIFIED FUNDS come in the form of diversification by way of sectoral investment, diversification by way of a mix in Dividend and Growth Funds, and diversification in the amount invested vis a vis the risk factor.
Its prudent to be a Cautious and Informed investor.
Disadvantages as stated earlier, is the very exposure to market risk. Mood Swings in the market could jerk your equities to a large extent affecting profitability and some times, even the captial invested.
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