Types of mutual funds.
Generally, there are a few basic types of mutual funds that are available for the members of the general public to invest in. The purpose of this post is to provide general information relative thereto. This post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as providing legal or investment advice. If you have any questions relative to this post, you should contact a qualified professional
Generally, mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards. The specific description of each will be contained in the original prospectus for the fund and any subsequent supplements. Please make sure that you refer to these documents prior to making any investment in any type of mutual fund.
- Money market funds: have relatively low risks. By law, they can invest only in certain high-quality, short-term investments issued by U.S. corporations, and federal, state and local governments.
- Bond funds: have higher risks than money market funds because they typically aim to produce higher returns. Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically.
- Stock funds: invest in corporate stocks. Not all stock funds are the same. Some examples are:
- Growth funds: focus on stocks that may not pay a regular dividend but have potential for above-average financial gains.
- Income funds: invest in stocks that pay regular dividends.
- Index funds: track a particular market index such as the Standard & Poor’s 500 Index.
- Sector funds: specialize in a particular industry segment.
- Target date funds: hold a mix of stocks, bonds, and other investments. Over time, the mix gradually shifts according to the fund’s strategy. Target date funds, sometimes known as lifecycle funds, are designed for individuals with particular retirement dates in mind.
Caution: Read the prospectus relating to the fund. If you do not understand it, you have two choices: (1) don’t invest or (2) take time to educate yourself to the extent necessary to feel comfortable with making an investment decision.