An equity fund is a type of mutual fund that contains a portfolio of stocks, which are shares of ownership in a company. A mutual fund is an investing tool that pools investor money together to purchase a diversified array of stocks, bonds, or other financial securities.
Although equity funds always contain stocks, they can be very different from one another. Some funds are actively managed, meaning that a fund manager actively works to obtain superior returns versus the market. Others are passively managed, which means that the equity fund tracks an index. In investing, an index refers to a set of securities that represent a particular portion of the market, such as the Standard & Poor's 500 (S&P 500), which measures the market capitalizations of 500 large U.S. companies. A passively managed fund seeks to mirror the results of an index such as the S&P 500.