Mutual Funds

 

Types of Mutual Funds

As mentioned above there are numerous types of mutual funds you can invest in.  Here is a brief description of just some of them.  When in the fund the word "bond" is mentioned, check out our sections on Bonds.




 

  • Stock Funds:  Invest in stocks.  They can be in the U.S., foreign stock or a combination.  They can have a conservative approach, investing in old established firms; or aggressive which take on a high risk/reward approach.
  • Bond Funds:  Funds that invest in a mix of government and corporate bonds Bonds.  Some are very conservative only investing in high quality, low risk, and lower profit bonds.  Others in low quality, high risk bonds.
  • Municipal Bond Funds:  These invest in tax-free bonds issued by local and state government.
  • High Quality Corporate Bonds:  Investing only in bonds from top rated corporations with the best chance of paying interest and principal on time.  High-Yield Bond Funds:  Investing in companies with low ratings, high yield, very risky.  These bonds are also referred to as Junk Bonds.
  • Balanced Funds:  Funds investing in both stocks (preferred and common) and bonds.  The prop ortion will be spelled out in the prospectus.  Most own more stocks than bonds.
  • Growth Funds:  Take a slow but steady approach over the long run.  They invest in large stable companies.
  • Aggressive Growth Funds:  These look to optimize capital gains.  They invest in new companies, often with great potential but often unproven, such as an IPO company (Initial Public Offering).  They may also invest in troubled companies that are trying to turn around their fortunes.  Higher risk, but they hope for a greater reward.
  • Income Funds (Equity Income Funds):  A fund designed to produce current income for its shareholders vs. growth of principal.  This is achieved by investing in companies that pay dividends and may also invest in convertible securities Bonds and other types of bonds.
  • Growth & Income Funds:  Combines the benefits of growth funds and income funds.  They seek to invest in well established companies and those that provide dividend income.
  • Index Funds:  Funds that invest in a broad selection of stocks that try to equal not beat the market Index Funds.
  • Flexible Portfolio Funds (Asset Allocation Funds):  Funds left to the discretion of the fund manager.  The amount of stocks, bonds, cash or other investments continues to fluctuate based on where or what the manager thinks can bring the highest return.
  • Global Funds:  Invests in both domestic (U.S.) and international stocks.  In the case of global funds and international funds an additional factor is the movement of currency values (which can either help funds increase in value or decrease in value).
  • Global Bonds Funds:  Funds that purchase bonds issued by U.S. companies and foreign companies.  As with global funds, these funds are also affected by the currency exchange rate.
  • International Funds:  A fund that invests all its assets and whose headquarter is outside of the United States.
  • International Bond Funds:  Funds invested in companies whose headquarters are outside of the U.S.  Sometimes these funds are specialized in an area such as emerging markets like Turkey and Brazil.
  • Single Industry (Sector) Funds:  These funds invest in only a single sector.  They are betting this one sector will outperform the other sectors.
  • Socially Screened Funds:  Funds with a social conscience.  Investing in environmentally friendly companies to ones that will not include a defense contractor.  There are also political screens to avoid investing in companies that have operations in countries that violate human rights.
  • Real Estate Investment Trust Funds (REIT):  These funds invest in real estate companies which own real estate, be it stores, offices, factories or apartments.
  • Money Market Funds:  These funds by law must invest in low-risk securities.  They invest only in short term (one day to one year) debt obligations such as:  Treasury Bills (see U.S. Treasury Offerings), Certificate of Deposit (CD) and commercial paper of financial company (short term promissory note issued by a large financial company, minimum $25,000, ranging from 30-270 days).  The NAV factor remains a constant $1 per share, but the interest rates fluctuate.  They are not FDIC insured, but the risk is low.  Money Market Funds are one of the safest types of mutual funds.  Its goal is to preserve principal modest dividends.
  • U.S. Government Bonds Funds:  Funds invested in both the U.S. Treasury issued securities and those of federal agencies (which are not fully backed by the government, but never-the-less are considered safe).  See U.S. Treasury Offerings.