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The Various Types of Mutual Funds
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The Various Types of Mutual Funds
It can be difficult to understand all the different types of mutual funds, but this guide will give you brief overview of each type.
If you are new to mutual funds or unsure about the difference between each type of fund, you can explore each category to learn what each type of fund invests in. This guide can help you decide which type of mutual fund works for you.
When you invest in mutual funds, you are typically investing your money directly in a company or government or loaning your money to someone. These different methods of investing are represented with different types of mutual funds. If you can imagine something to invest in, you can probably find a mutual fund investing in it.
Bond funds (also referred to as income funds) invest in debt or loans to companies or organizations. These funds typically provide regular payments of interest to investors.
The regular income and steady interest rates attract conservative investors to bond funds. Bond funds generally carry less risk than stocks.
Bond funds can be broken down further into the following different categories:
- Municipal bond funds invest in debt or loans which provide money to municipal agencies of state or local governments.
- Government bond funds invest in the bonds, bills, or notes of national governments.
Stock funds (also referred to as equity funds) invest directly in stocks of public corporations. Stock funds carry more risk than other investments, but have potential for higher returns than other investments. Higher potential returns are the main reason why stock funds are very popular with investors.
Stock funds can be broken down further into the following different categories:
- Growth funds invest in stocks with an investment goal of capital appreciation and increasing profits.
- Value funds invest in stocks which trade at a good price compared to their fundamental value.
Sector funds invest in stocks in a specific industry or market segment. Here are a few different categories for sector funds:
- Energy funds invest in the stocks of companies that produce energy or support energy companies.
- Real estate funds invest in stocks of companies in the real estate industry.
- Healthcare funds invest in stocks of companies that provide health care services, health insurance, biotechnology, pharmaceutical products, and other companies that support the healthcare industry.
Global funds refer to investments located anywhere in the world. These funds usually invest in stocks of foreign companies, but can hold any type of investment (such as stocks, bonds, loans, notes, and currencies).
Emerging market funds refer to investments located in countries that are experiencing rapid developments in financial markets, industry, infrastructure, or technology. These funds usually invest in stocks of companies in these developing countries.
Balanced funds (also called hybrid funds) have some combination of both stocks and bonds.
Index funds try to match the same investments as a specific market index, such as the Dow Jones Industrial or the S&P 500. Index funds usually invest in either stocks or bonds.
Money market funds are different from both stocks and bonds, and invest in cash or extremely short-term money contracts.
Currency funds are money market fund that invest in the currency of different countries and options to purchase those currencies.
There are also a few different types of mutual funds that are designed for a specific investment strategy.
Dividend funds are funds whose goal is to provide consisent income to shareholders.
Asset allocation funds invest only in a portfolio of two or more other mutual funds. Most asset allocation funds are not managed by an investment management team.
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