Let’s review what a mutual fund is:
“This investment is a shared investment vehicle which is managed by an
investment manager.
The
investment manager is the one responsible for allowing or preventing you and
other investors from investing your money in stocks, bonds or other investment
vehicles. They are valued at the end of the trading day. Also, any transactions
of buying or selling shares are nullified once the market closes.”
Through mutual funds, you can gain access to professionally
managed portfolios of bonds, equities, and other securities. You and the other
shareholders will also participate in both losses and gains of the fund no
matter how small.
There are different kinds of categories when it comes to mutual
funds which represent the kinds of securities that the fund manager invests in.
Let’s list down 3 of the most common kinds of mutual funds:
Fixed Income funds
It’s one of the largest categories. With a fixed income
mutual fund, you can focus on investments that pay a fixed rate of return. Examples
of this will be corporate bonds, government bonds, or other debt instruments. The
idea behind this category is for the fund portfolio to generate a considerable
amount of interest income which can be passed on to the shareholders.
Equity funds
With this one, you will be investing in stocks. These kinds
of funds aim to grow faster than the other kinds meaning that there is usually
higher risk of losing money. Equity funds include those specializing in growth
stocks, income funds, value stocks, large-cap stocks, mid-cap stocks, small-cap
stocks, or a combination of these.
Balanced funds
This is a mix of both fixed income and equity securities. It
tries to balance the aim of achieving higher returns against the risk of losing
money. These funds mostly use a formula to split money among the different
types of investments though they tend to have higher risks than fixed income
funds but less risk than equity funds. This actually depends on the approach;
an aggressive fund holds more equities and fewer bonds, while a conservative
funds will have fewer equities and more bonds.
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