Investing in which of the following funds will give you the least diversification.
A. Growth Funds
B. Capital appreciation funds
c. Equity income funds
d. sector funds
http://www.investopedia.com/terms/s/sectorfund.asp
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To determine which fund gives the least diversification, we need to understand what each fund represents and the level of diversification it provides.
A. Growth Funds: These funds primarily invest in stocks of companies with above-average growth potential. They often focus on specific sectors like technology or healthcare but may also hold a mix of different sectors. While growth funds can offer diversification through exposure to multiple stocks, the level of diversification depends on the specific holdings within the fund.
B. Capital Appreciation Funds: These funds aim to achieve capital appreciation primarily through long-term capital gains. Similar to growth funds, capital appreciation funds may hold stocks from different sectors, providing diversification within the fund. However, the level of diversification depends on the specific composition of stocks in the fund.
C. Equity Income Funds: These funds focus on investing in dividend-paying stocks that generate income for investors. Equity income funds typically hold a mix of companies from various sectors, aiming to provide investors with regular income. The inclusion of dividend-paying stocks from different sectors can offer some level of diversification within the fund.
D. Sector Funds: These funds concentrate investments in a specific sector or industry, such as technology, healthcare, or energy. By focusing on a single sector, sector funds usually provide less diversification compared to the other fund types mentioned above. The returns of sector funds may be more correlated with the performance of that particular sector, potentially increasing investment risk.
Based on the explanations above, the fund that would provide the least diversification is D. Sector Funds, as they tend to concentrate investments in a single sector, reducing the overall diversification within the portfolio.