Equity Funding

Equity funding

An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund.

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Equity Funding

1. An insurance policy paid for by a mutual fund. That is, the value of the shares of the mutual fund pays the premiums of the insurance policy. Equity funding can be useful because it provides the risk reduction of an insurance policy while allowing the policyholder to keep any returns from the mutual fund over and above what is owed for the premium. It is most common with life insurance. However, the practice is controversial, as it has been associated with the Equity Funding Corporation of America, which offered this investment vehicle. This company perpetrated massive accounting fraud in the 1960s and 1970s. Perhaps because of this, equity funding is not very popular with investors.

2. See: Equity financing.