Different Types of Mutual Funds

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This is a guide to the different types of mutual funds. When it comes to investing in mutual funds, investors have literally thousands of choices.

Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance - either on your own or with the help of a financial professional. Once you know what you're saving for, when you'll need the money, and how much risk you can tolerate, you can more easily narrow your choices.

Most mutual funds fall into one of three main categories - money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.

Money Market Funds:

Money market funds have relatively low risks, compared to other mutual funds. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds.

Bond Funds:

Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards.

Stock Funds :

Although a stock fund's value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments - including corporate bonds and government bonds.

You can purchase shares in some mutual funds by contacting the fund directly. Other mutual fund shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day.

Making any sort of investment involved a certain amount of risk so it is always wise to seek the advice of a professional before making any decisions.

You may freely reprint this article provided the author's biography remains intact:

About the Author

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.


ratmforever 11.12.2007. 13:50

Is it wise to invest in different mutual fund companies or just one? Is it wise to invest in different mutual fund companies or just one company for maximum returns? My reason is that in case Company A fails, I still have a backup with other companies.

What is your opinion on this, will it matter if I invest in different companies? What are the chances that a mutual fund company will actually fail/close?
About diversification: isn't mutual funds already in itself diversification?


Admin 11.12.2007. 13:50

Mutual Fund companies tend to not fold, but I can understand your concern. But generally when people invest in funds they look at different types of funds - like large cap domestic, international, small cap domestic, emerging markets, etc. It certainly can't hurt you to go with different fund companies.

I suggest you take a look at index funds - Vanguard and Fidelity have some good ones. They invest in a variety of markets and beat mutual funds over time. They also have low expense ratios. So if you want to look at seperate fund companies take a look at some of Vanguard's index funds.


sgeo786 29.01.2008. 10:40

How to decide which is the best mutual fund to invest in India. please also give answers to following.? 1.How to study mutual fund performance.
2.What are different types for example growth fund or reinvestment. Which one is better
3.At the moment which one is best option.
4.Some good web sites which will give reliable information on Mutual funds and how they are doing.


Admin 29.01.2008. 10:40

Pls visit MF sectionof www.moneycontrol.com . Free site . This has the comparision for all MF


Aaron 22.12.2010. 19:11

What are the best long-term investments in today's market for someone at age 18? I am 18 years old. I realize the importance of investing for retirement early because of the impact that the "baby-boomers" will have on the nation's social security fund. I have been looking around at different types of investments (Mutual Funds, Roth IRA's, etc.), but I don't really have a concrete answer of what looks best. If I can't get one here I might just have to get a financial adviser.

Thanks for your help


Admin 22.12.2010. 19:11

First- long term is a somewhat flexible view, or should be in that you must always be prepared to modify positions according to changes in market and economic conditions. When the recession hit, I advised a friend to make a change with a particular stock he owned in order to profit from the recession. He did not follow the advice, as he thinks he's a long-term investor. That one error cost him $425,000 as of today, and the stock is only 70% back. When it's fully recovered to pre-recession value, the number he missed out on by not adjusting his strategy will be $696,000. You have to play the hand on the table- not the one that existed last week or might next year.

Roth is a good way to go, however the limits on what you can contribute will prevent it from becoming as large as it might be otherwise. I use both an IRA and and a conventional account, and I manage two other family accounts. My best portfolio has grown 593% in 33 months, so I'm doing a bit better than your average investor.

Starting young is a huge advantage. Starting at 18, it's entirely possible to be a millionaire in your 30's. You won't do that with the slow growers however. Many super winners we bought in the depth of the recession are close to normal price, and no longer hot buys. However, the real estate market in still in a recession induced depressed state. That means stocks in that market are still down, and will grow from the natural recovery of real estate as well as from individual success, making them multiple winners. Many of the REITS (real estate investment trusts) will gain from 3-10 times the current cost in the next five years, and will pay fat dividends as well. The time to get in on them is now- and like everything else, there will be a time to get out and move to something new with stronger potential when the conditions change.

You must consider what risk exposure you want to take, what gains you hope to achieve, if you will manage it yourself or give it to a broker (never again in my case) and much more. IF you will not monitor it yourself, play it safe. Nobody will take better care of your money than you will.


John 09.02.2010. 02:58

New to investment, how to tell types of mutual funds? I'm interested in investing in mutual funds and have done some reading regarding the different types of funds. Now, I was wondering how do you tell the type of mutual funds it is such as no-load, money-market, etc? where do you look at to find those information about a fund? thank you in advance


Admin 09.02.2010. 02:58

Mutual Funds For Dummies

It's your best bet as a good intro to Mutual Funds.

After you have a basic understanding.... you'll need to create an "asset allocation" model for yourself. The book will cover that.

As far as research is concerned. Many brokers have free research on their web sites (Best research for Mutual Funds would be Charles Schwab & Fidelity Investments). I like MorningStar.com the best..... but that's $150 a year.

Last thoughts;
Don't chase the hot fund of last year..... many times they turn out to the loser of the current year.
A good "asset allocation" is more important than picking the "best" funds.
Understand your own risk tolerance. I lost over 50% in some of my funds in 2008. In 2009 they were my best performing funds. The important lesson: I did not get scared out of them... because I understood what the risks were and what I had invested in.

Try to only buy no load, low fee funds.

Good luck!


The One 22.12.2009. 16:29

Is now a good time to invest in Mutual Funds? And what type of mutual funds do you think is best to invest in now?
Or should I invest in something else? When do you think is thee best time to invest in mutual funds? Thank you.

The One

Admin 22.12.2009. 16:29

Mutual funds are long-term investments. NOBODY knows what the market will do over the next year, 5 years, etc. What we DO know is history. Over the LONG-TERM (5+ years), stocks (and stock mutual funds) have averaged better returns than any other investment. So, if you are investing long-term, then "now" - whenever that happens to be - is always the best time to invest.

For people who worry about the market tanking right after they invest, I always recommend a strategy called dollar-cost averaging. This is where you just invest a portion of your money once a month over the next 6-12 months. For example, if you have $10K to invest, you might just invest $1,000 each month over the next 10 months. That way, if the bottom falls out of the market in, say, Month #3, you can take advantage of the lower share prices. Of course, the flip-side is that if the market keeps going up during this time, you will miss out on much of that growth.

If you are new to mutual fund investing, take comfort in the fact that many studies have shown that WHICH fund you choose has much less bearing on your returns than your investment behavior - that you start early in life, that you invest regularly, and that you don't panic and sell during market downturns (historically about 1 out of every three years the market loses money). So, I would recommend starting with an S&P 500 Index fund - this is a great "core" fund, around which you can build a portfolio if/when you decide to learn more about different types of funds.

As far as fund families go, I like Vanguard, Fidelity, and T. Rowe Price. All have a great selection of funds, low fees, and outstanding customer service.

I hope that helps. Good luck!


Sin nombre 14.01.2010. 00:35

My mutual funds are mostly international , have I assumed too much risk ? I own 7 different mutual funds . During the past 5 years , all of them outperformed the S & P 500 and this includes the 2008 crash . However , they include 70 % international , 30 % domestic . They consist of 98 % equities . The international is approximately 80 % large cap established markets of Europe and Japan and 20 % emerging markets like India , China and Brazil . My retirement goal is 20 years away .

Sin nombre

Admin 14.01.2010. 00:35

You gave us the first clue we need to answer this -- your time horizon. But you didn't specify the other critical element, which is how much risk you're comfortable with. I'm guessing you are actually very comfortable with risk, given this portfolio. That's important, because it means that you won't panic when this asset mix "turns against you" by underperforming.

In most ordinary times, I would be more cautious about your heavy equity proportion than I would about your international allocation. In fact, I think as we look forward, people need to be more comfortable putting more of their money into international funds. And I applaud you for putting a substantial portion into the established markets -- some people get a little too excited over the possibilities in emerging markets.

All that being said, even though I have a fairly high risk comfort level myself, you will want to think about gradually allocating more money into non-equity funds. If your money's in a 401k/403b plan, you may have limited choices...so that may mean bonds is your only other choice. If so, I certainly wouldn't plug a lot of money into bonds right this minute; and if you do, see if you can also spread the bond money over a variety of types -- US government bonds are unlikely to do well this year, but good solid investment-quality corporates will do OK. High-yields have done very very well over the last 9 months but they are not exactly overpriced either. A single bond fund that covers all types may do pretty well if run by bond experts (like the folks at Pimco.)

Of course, if you *can* allocate some money to assets other than stocks and bonds, that would be adviseable in the long run. If not some in commodities, then perhaps a separate REIT allocation would do you well -- unless your specific equity funds include substantial REIT holdings. (This is long-term thinking, I am not claiming that REITs will do particularly well in the next year, even though I have made substantial returns in some underpriced REITS I picked up last spring.)

Hope that helps.


Logan 18.09.2008. 18:36

Will the stock market crisis effect my 401k? Should I put less money in it now? Or should I invest in different types of stocks. I have fidelity 401k. They give you a choice of like 20 different types of mutual funds, a couple index fund, and a couple bonds. I don't know which ones to pick. Almost all of them has had a negative return in the past year, except for the bonds. I guess I should just stick with bonds for now???


Admin 18.09.2008. 18:36

Yes, it will impact all 401k plans, adversely.


Melissa 03.10.2011. 01:59

What type of services does Mutual Funds offer? What type of services and products does Mutual funds offer?


Admin 03.10.2011. 01:59

There are many type of Mutual Funds & companies that offer them.There are 1000's of funds.

They are different ways to invest. Here's some examples;
Stock Fund made up of some of the largest largest companies in the US &/or world. A manager or team of managers pick the individual stocks. There can be 50 or less... there can be 200 or more individual companies picked.

Along the same lines;
Mid Cap, Small Cap, International etc......

Some include or are solely made up of bonds.

They allow an individual investor to have professional management, with diversification of companies.... with usually lower cost than the individual could achieve on their own.

Read: Mutual Funds For Dummies


Navi 03.12.2007. 07:04

What is mutual funds and describe its types? What is mutual fund and how people like who are monthly salaried employees can invest in it?


Admin 03.12.2007. 07:04

A mutual fund is a collective investment vehicle that pools money form different investors and inturn invest it in different asset classes like(shares bonds and money market instruments).
the concept of mutual fund has become popular coz of the advantages it has got..like professional fund management, low costs(transaction costs), reduction in riskliquidity, conveniance and flexibility and most importantly Portfolio diversification.Broadly Mf's r divided into Open end funds n Closed end funds.
Open-ended fund

An open-ended fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested, new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.

Closed-ended fund

A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares are high they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price.

The added element of market forces tends to amplify the performance of the fund increasing investment risk through increased volatility.

under them different types of funds(most of them are open ended) are:

Equity funds : where the collected money is invested in equity instruments(shares)

Debt funds : invested in debt instruments like Bonds, govt and private Bonds etc

Guilt funds : exclusively in govt. securities

Fund of funds: invest in other mutual funds where the diversity is maximum and returns are good.

Money market or liquid funds : which invest in Tresury bills, certificates of deposits(CD's), commercial papers..which are very short term in nature.

Commodity funds: which invest in comodities like gold, silver, oil etc

Any body can invest in mutual funds whether u r salaried or a business man.
there are different kinds of plans available to u to invest like one time investment and SIP's . Automatic Reinvestment plans(where the dividends u get will be automatically invested again), Systematic Withdrawl plans(important to realise the profits meaning ull be regularly getting the returns ) ELSS(Equity linked Savings scheme where there will be lock in period of 3 years and ull get the maximum tax benefit with good returns)
u can start you investment with SIP's(systematic investment plans) where equal amounts of money is invested every month(say 500 or 1000 every month) for which amount the Mutual fund units are bought..this is the best way of compounding your returns and maximise yr profits in a long term


TheProfessor 05.11.2007. 06:34

What's the most effective way to gain confidence in investing in mutual funds? What's the best mutual funds for a time like today?


Admin 05.11.2007. 06:34

There's no reason not to have confidence in mutual funds. It's just you and a bunch of other people ganging up in this fund to buy a bunch of stocks and bonds. Each fund buys different ones.

A good fund for basic investing is one that is well diversified, having many different types of stocks, bonds, etc. A good fund also has low expenses and no loads (commissions).

A good fund to start with is the Vanguard STAR fund. These are good investments for anytime, however you shouldn't invest unless you plan on letting it sit there for several years.


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