187) Equity Fund Cycle

The diagram above is a simple explanation on the money cycle in an Equity fund. It starts from money invested into an Equity fund and goes through the cycle to grow the money value. In turn, the previous money generates move value through many ongoing cycles.

How Your Money Being Invested into Businesses?

Let us use the Equity Fund Cycle diagram above as illustration. Your Money is used to purchase an Equity Fund. The collective money from many investors are pooled into the fund. With a larger amount of money, the fund managers buy many Stocks. Stocks are simply defined as ownership of Companies. The Companies do a lot of Businesses. All Businesses main function is to make Profits.
The Profits are returned back to the stocks holders via dividends payments which are are actually more Money.  

With more money, the fund manager increases the Equity fund value and buy more stocks. The cycle then continues further.

The fund value goes higher from the Company profits payment to investors. The Equity fund value is also affected by the stock price changes. When the stock price increases, the Equity fund value also increases. When the stock price decreases, the Equity fund value also decreases.

Most of the time, the stock prices are affected by the demand and supply of the stock. If more people believes the company business is getting better and willing to buy, the stock price increases. If more people believes the company business is getting worse and wants to sell, the stock price drops.

Please also note that the diagram is a simplistic view of an Equity Fund. The actual Equity fund portfolio is more complex and consists of other assets like bonds and money market instruments. It can get even more complex if the Equity fund also invests into foreign countries.

The ongoing buying and selling of many stocks, bonds and money market instruments affects the fund prices.

Do contact your Unit Trust Consultants to discuss on your investment requirements.

For more related articles:

223) When to Switch Equity Fund

https://highlevelrules.blogspot.com/2019/03/223-when-to-switch-equity-fund.html

222) Does Bond Fund Move Opposite to Equity Fund?
http://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html

22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

46) Why You Should Diversify Into Different Fund Types?
http://highlevelrules.blogspot.com/2017/07/why-you-should-diversify-into-different.html