A stock fund or equity fund is a mutual fund, exchange-traded fund (ETF), closed-end fund, or unit investment trust (UIT) that invests primarily in stocks, which are also called equity securities or equities. A stock is an instrument that represents an ownership interest (called equity) in a company and a proportional share in the company’s assets and profits. The types of stocks owned by a stock fund depend upon the fund’s investment objectives, policies, and strategies.

Some stock funds are “diversified” and invest in the stocks of a broad array of different companies, while other funds are “non-diversified” and invest in the stocks of a smaller number of companies.  Certain stock funds may also focus on particular sectors or industries.

A stock fund’s value can rise and fall quickly (and dramatically) over the short term. Indeed, one of the main risks associated with stock funds is market risk. Market risk is the possibility that stock prices will fluctuate for a broad range of reasons, such as the overall strength of the economy or demand for particular products or services related to a specific company. Historically, however, a diversified basket of stocks (and the funds that own them) have performed better over the longer term than other types of investments.

Before investing in a stock fund, you should carefully read the fund’s available information, including its prospectus and most recent shareholder report, which are available on the fund’s website, free of charge.