Types Of Mutual Funds

Types Of Mutual Funds

Types of Mutual funds are divide into several kinds of categories & representing the kinds of securities they have target for their portfolios.

There is a fund for nearly every type of investor so investment approach.

Other common types of mutual funds include money market funds & sector funds & alternative funds.

Smart-beta funds & target-date funds & even funds of funds & mutual funds that buy shares of other mutual funds.

Types Of Mutual Funds

 

The idea here is to classify funds based on both the size of the companies invested in and the growth prospects of the invested stocks.

The term value fund refers to a style of investing that looks for high-quality, low-growth companies that are out of favor with the market.

These companies typically have high P/E ratios and do not pay dividends.

A compromise between strict value and growth investment is a “blend,” which simply refers to companies.

That are neither value nor growth stocks & are classified as being somewhere in the middle.

Types Of Mutual Funds

 

The other dimension of the style box has to do with the size of the companies that a mutual fund invests in.

Large-cap companies have high market capitalizations so with values over $10 billion.

Market cap is derived by multiplying the share price by the number of shares outstanding.

Large-cap stocks are typically blue chip firms that are often recognizable by name.

Small-cap stocks refer to those stocks with a market cap ranging from $300 million to $2 billion. Mid-cap stocks fill in the gap between small & large cap.

A mutual fund may blend its strategy between investment style and company size.

The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects small-cap growth.

Such a mutual fund would reside in the bottom right quadrant (small and growth).

Fixed-Income Funds

Another big group is the fixed income category. A fixed-income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments.

The idea is that the fund portfolio generates interest income, which it then passes on to the shareholders.

Sometimes referred to as bond funds, these funds are often actively managed and seek to buy relatively undervalued bonds in order to sell them at a profit.

These mutual funds are likely to pay higher returns than certificates of deposit and money market investments but bond funds aren’t without risk.

Because there are many different types of bonds & bond funds can vary dramatically depending on where they invest.

A fund specializing in high-yield junk bonds is much riskier than a fund that invests in government securities.

All bond funds are subject to interest rate risk, which means that if rates go up so the value of the fund goes down.

Types Of Mutual Funds

Index Funds

Another group, which has become extremely popular in the last few years, falls under the moniker “index funds.”

investment strategy is based on the belief that it is very hard & to try to beat the market consistently.

So, the index fund manager buys stocks that correspond with a major market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA).

Analysts & advisors so there are fewer expenses to eat up returns before they are passed on to shareholders.

Balanced Funds

Balanced funds invest in a hybrid of asset classes, whether stocks, bonds, money market instruments, or alternative investments.

Specific allocation strategy that is fixed, so the investor can have a predictable exposure to various asset classes.

Other funds follow a strategy for dynamic allocation percentages to meet various investor objectives.

This may include responding to market conditions, business cycle changes, or the changing phases of the investor’s own life.

The objectives are similar dynamic allocation funds do not have to hold a specified percentage of any asset class.

The portfolio manager is therefore given freedom to switch the ratio of asset classes as needed to maintain the integrity of the fund’s stated strategy.

 

Types Of Mutual Funds

Money Market Funds

The money market consists of safe (risk-free), short-term debt instruments, mostly government Treasury bills.

This is a safe place to park your money. You won’t get substantial returns, but you won’t have to worry about losing your principal.

The amount you would earn in a regular checking or savings account and a little less than the average(CD).

Money market funds did experience losses after the share price of these funds, typically pegged at $1.

 

Income Funds

Income funds are named for their purpose: to provide current income on a steady basis.

These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity in order to provide interest streams.

While fund holdings may appreciate in value, the primary objective of these funds is to provide steady cash flow​ to investors.

These funds consists of conservative investors & retirees. Because they produce regular income, tax-conscious investors may want to avoid these funds.

International/Global Funds

An international fund invests only in assets located outside your home country.

Global funds, meanwhile, can invest anywhere around the world, including within your home country.

Increasing diversification so since the returns in foreign countries may be uncorrelated with returns at home.

The world’s economies are becoming more interrelated economy somewhere is outperforming the economy of your home country.

Specialty Funds

This classification of mutual funds is more of an all-encompassing category that consists of funds.

Be popular but don’t necessarily belong to the more rigid categories we’ve described so far.

These types of mutual funds forgo broad diversification to concentrate on a certain segment of the economy or a targeted strategy.

There is a greater possibility for large gains, but a sector may also collapse.

Socially responsible funds invest only in companies that meet the criteria of certain guidelines or beliefs.

Exchange Traded Funds (ETFs)

These ever more popular investment vehicles pool investments & employ strategies consistent with mutual funds.

Many ETFs also benefit from active options markets so where investors can hedge or leverage their positions.

 Compared to mutual funds, ETFs tend to be more cost effective & more liquid.

The popularity of ETFs speaks to their versatility & convenience ETFs also enjoy tax advantages from mutual funds.

 

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