Types of Mutual Funds

Instead of buying individual stocks, bonds, or other securities, you can buy shares of a mutual fund. This will allow you to become a partial owner of their variety of financial holdings. Professionals research securities and monitor the funds performance to try and give you the best return possible. Mutual funds generally fall into a category. In this article, we will go over the different types of mutual funds available to you.

Target Date Funds

A target date fund is going to adjust your asset mix based on the year you plan to retire. The farther away from retirement you are, the more aggressive the growth strategies will be. As you approach your retirement date, the mutual fund’s holdings will gradually become more conservative.

Stock Funds

A stock fund principally invests in stocks. The mutual fund will choose companies that are small, mid-size, or large cap. These funds are normally named by their approach to investing.

Bond Funds

Bond funds use bonds to reach the goal of generating a consistent income. These funds prioritize investments that pay a set rate of return. This could include government bonds, corporate bonds, or other debt instruments. This type of fund generally helps mitigate but not eliminate risk.

Index Funds

An index fund uses a combination of securities to try and replicate the performance of an index. Such as the S&P 500. These types of funds require less research and management, so they generally have lower fees.

Balanced Funds

The purpose of a balanced fund is to invest in a variety of securities to reduce your risk through diversification.

Money Market Funds

When you purchase a share in a money market fund you are investing in a low risk, short term debt instrument like government treasury bills. The relatively low risk comes at a cost, as they earn little more than a regular savings account. The downside is you are getting very little return on your investment, and you are not insured by the FDIC like a savings account would be.

Income Funds

An income fund is meant to distribute income on a regular basis. These funds usually have a portfolio made up of government and high-quality corporate debt. With these funds they will hold onto bonds until they mature so they can provide an income stream.

International Funds

The purpose of international funds is straight forward, they only invest in assets outside the U.S.

Sector and Theme Funds

With a sector and theme fund their purpose is to make a profit by investing in specific industries such as healthcare or technology.

Socially Responsible Funds

A socially responsible mutual fund will invest only in companies that meet certain criteria. Usually these are sustainable assets investing in green technology like solar or wind power.

Investing in Mutual Funds

As you can see, there are many types of mutual funds available to invest in. Meet with a qualified investment advisor who can find the right funds for you and your situation.

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