Types of Funds

There are different types of mutual funds, which is a good because that means you can find a mutual fund that fits your individual style. This is rather important since there are currently more mutual funds on the market today than there are stocks. At least this gives you plenty of investing opportunities.

What makes the different mutual funds so different from one another are their risks and rewards. Generally, the higher the earning potential, the higher the risk. In return, the high risk can result in a higher loss. Nevertheless, the right investment means making the profit that you want to make. And you can diversify your portfolio to offset risk, but it is impossible to offset all of it. That is something to take into consideration when choosing which fund is best for you.

Money Markets and Bonds

You have money market funds and bond funds. The money market fund consist mostly of treasury bills, so it deals primarily in short-term debt instruments. In other words, you have a safe place to put your money. Your returns won't be fantastic, but the risk is not that high either. You can, however, expect to earn twice the return you would earn through a typical savings account, yet less than you would expect on a certificate of deposit.

Bond funds are designed to steadily provide an income. The investments are mostly in government and corporate debt. The value does appreciate, while the main goal is to provide the investors with an income that is steady. That is why the primary investors in bond funds are retirees and the conservative investor. This is why the bond fund tends to be referred to as an "income fund."

If you were to compare bond funds to certificates of deposit, you would find that bond funds do tend to have higher returns. There is a risk involved, however. Because there are a variety of bond funds, they all can vary from one another. For instance, you have what is called the "junk bond," which tends to have high yields because it is a risky investment. The investment is in government securities and because of the risk offers interest rates that are considerably higher than those offered on other securities.

Balanced and Equity Funds

You also have what are called balanced and equity funds. These funds have a mixed degree of risk because the goal is to balance the capital appreciation with the income and safety of the investment. The strategy that is used is to invest in a combination of equities and fixed income. For instance, a fund may have 55% equity and 45% fixed income. This percentage, called the "weighing" can vary and can have a specified minimum in some instances.

Equity funds are the largest mutual fund category. The goal to this is long-term capital growth while some income is made. There are a number of equity funds, though, because of the number of equities that are available.

Index and Specialty Funds

Index funds are unique in that they work to replicate the market performance. In other words, these types of funds try to match or better the performance of the market they are traded under. When the market performance is replicated, the investors benefit with lower fees.

Specialty funds are those that are popular, but they don't belong to any one category of mutual funds. For instance, there are regional funds because they have a focus on a specific area of the world. There are also sector funds that focus on a particular sector. As you can see, there are many fund types for you to choose from.

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