Have you ever bought shares online or invested in stocks before? If you have then you might have heard of Equities one way or another! This means that equities are certainly important in the world of investment especially now that people have leant to make money just by sitting pretty at home. Moving forward, let’s talk about UK equity, how you could invest in it and all there is to know about it.
What are equities?
Buying stock in a company is the traditional way to invest. Because you have an equity stake in a company as a shareholder, shares are also known as equities. Using an equity fund, you can now invest in thousands of companies at the same time. Historically, equities have outperformed safer investments such as bank accounts and bonds, and as part of a well-balanced investment portfolio, they can be a real driver of growth.
What are equity funds?
Direct investment in stocks can be risky because it is dependent on the performance of a small number of companies. As a result, you may want to consider purchasing equities through an investment fund, such as a unit trust or open-ended investment company (Oeic), investment trust, or tracker fund, which invest in a variety of shares in various companies. Equity funds typically concentrate their investments in a variety of countries, regions, industries, and investment styles to diversify or spread risk. There are several types of equity funds, each with its own set of characteristics and level of risk. In general, equity funds can be divided into the following categories:
Active equity funds vs. passive equity funds
To track the performance of an index, some funds purchase shares from all of the companies in the index or a representative proportion of them. These are referred to as passive 'tracker' funds. They have lower annual management fees and are relatively simple to own, but they will always slightly underperform the stock market index due to the cost of investing in them. Active funds, managed by professional fund managers, seek to outperform the stock market index. You pay a higher annual fee for this service, but in theory, the manager will produce superior returns to compensate. However, there is no guarantee that active funds will outperform the market.
How do I go about Buying equity funds?
Some funds can be purchased directly online, or through a financial adviser or roboadviser. However, if you're confident in your risk tolerance and goals, the simplest way to buy funds is through an investment platform. Platforms allow you to buy and hold multiple equity funds and other investments, even within Isas. You pay fees in addition to the fees charged by the equity funds in exchange.
How to Benefit from Equity Funds Dividends and capital growth are the two types of returns from equity funds.
Dividend payments are the distribution of the company's profits, which are usually made twice a year.
2. Capital growth
You can profit if you sell your shares for more than you paid for them. This allows you to grow your capital (the money you invested in the first place).
Income funds seek to pay out dividends to fund holders regularly, using money earned from corporate dividends. Accumulation funds reinvest company dividends in more shares, allowing investors to profit from capital growth.
In addition to these potential gains, there are some potential costs to consider:
1. Ongoing charge figure (OCF) - an annual fee you must pay regardless of how well the fund performs.
2. Performance fees - These are typically levied by actively managed funds and take 20% of anything above a certain level of performance.
3. When a fund buys or sells a share, it must pay trading fees and stamp duty reserve tax.
4. Some funds charge exit fees if you decide to sell your investments.
Do I have to pay taxes on my equity investments?
Since April 2018, dividends can earn you up to £2,000 without being taxed. Dividends are taxed at 7.5 per cent if you are a basic-rate taxpayer, 32.5 per cent if you are a higher-rate taxpayer, and 38.1 per cent if you are an additional-rate taxpayer after that. When you sell equity funds, you may be required to pay capital gains tax on any gains exceeding £12,300 in the fiscal year 2021-22.
Nov 17, 2021