Pensions – definitions – Equity funds

Equity funds buy the shares of many different companies, thereby spreading the risk. Equities and equity funds produce good returns over long periods, although their short-term performance can be volatile and lead to big falls, which can be devastating if it happens just as a scheme member retires. 

The main types of equity fund are actively managed, where fund managers make investment choices and tracker funds, also known as passively managed funds, which simply try to mirror the performance of an index of shares, such as the FTSE 100. They are seen as lower risk and are cheaper but both types are considered high risk.

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