ForexCare.NetForex News & Analysis | Online Forex (FX) Trading
Types of Mutual Funds explained
This article describes in short text the characteristics, such as investment objective and potential for volatility, of various categories of funds. The descriptions are organized by the securities purchased by each fund: stocks, bonds, money market securities, or a combination of these.
Because mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax-exempt income, you can select one fund or any number of different funds to help you meet your specific goals. In general, mutual funds fall into these categories:
– Stock or Equity Funds invest in shares of common stocks.
– Bond or Fixed-Income Funds invest in government or corporate securities to generate income.
– Asset Allocation Funds invest in a combination of stocks, bonds and money market securities.
– Money Market Funds for high stability of principal, liquidity and income.
Those were the main categories, check the subcategories and try to remember them – it will be very useful for you.
STOCK OR EQUITY FUNDS
| Growth Funds | |
| What they invest in: | Generally invest in stocks for growth rather than current income. |
| Suitable for: | Growth-oriented investors who are able to assume risk or who are dependent on maximizing current income from their investments. |
| Value Funds | |
| What they invest in: | Generally invest in fundamentally strong businesses whose stocks appear to be selling at attractive prices. |
| Suitable for: | Investors who seek the possibility of long-term capital appreciation with varying levels of dividend income. |
| Blend Funds | |
| What they invest in: | Both growth stocks and value stocks. |
| Suitable for: | Investors who want the potential to build wealth over time while seeking investments that perform well when either growth or value stocks are in favor. |
| International Funds | |
| What they invest in: | Securities of international markets. |
| Suitable for: | While international funds offer opportunities for growth and diversification, these funds do carry some additional risks over domestic funds and should be carefully evaluated and selected according to the investor’s objectives, timeframe and risk. They are not suitable for investors whose goal is to conserve their principal or maximize current income. |
| Specialty/Sector Funds | |
| What they invest in: | Securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. |
| Suitable for: | Investors seeking to invest in a particular industry. They are not suitable for investors whose goal is to conserve their principal or maximize current income. |
BOND OR FIXED-INCOME FUNDS
| Taxable Bond Funds | |
| What they invest in: | U.S. government and government agency bonds, mortgage-backed and asset-backed bonds or bonds issued by corporations. |
| Suitable for: | Investors who want to maximize current income and who can assume a degree of capital risk in order to do so. When interest rates rise, the market price of bonds decline and so will the value of the funds’ investments. |
| Tax-Free Bond Funds | |
| What they invest in: | Bonds issued by state and local governments and other entities to raise monies for public works and improvements. |
| Suitable for: | Investors seeking income dividends that are free from federal taxes and, in some cases, state and local taxes. When interest rates rise, the market price of bonds declines and so will the value of the funds’ investments. |
ASSET ALLOCATION FUNDS
| What they invest in: | A variable mix of stocks, bonds and money market securities. Some use a “fund-of-funds” structure and invest in other mutual funds rather than individual securities. |
| Suitable for: | Investors seeking the advantage of investing in a single portfolio with broad diversification. |
MONEY MARKET FUNDS
| What they invest in: | Taxable money market funds invest in high-quality, short-term U.S. government securities and corporate money market securities. Tax-free money market funds invest in high-quality, short-term securities that are exempt from federal taxes and, in some cases, state and local taxes. |
| Suitable for: |
Money market funds are suitable for conservative investors who want high stability of principal and moderate current income with immediate liquidity. |
[...] Mutual fund analysis typically consists of a very basic analysis of the fund’s strategy (growth or value), median market cap, rolling returns, standard deviation and perhaps a breakdown of its portfolio by sector, region, etc. As investors, we often settle for statistical results without questioning the underlying drivers of those results, which in many cases can reveal some very interesting details. [...]