Types of Mutual Funds – What You Need To Know

Mutual Funds are an investment type that is considered open-end. This describes the fund’s method of buying and selling shares to and from investors at the end of the day. This allows investors to join and investors to leave at any given time permitting incredible flexibility in the investing term. Investors purchase their fund shares from the fund or a broker for the fund instead of other investors on the market such as the NYSE or NASDAQ. The investor can expect to pay the funds per share net asset value (NAV) plus any shareholder’s fees the fund imposes such as sales loads (also known as front-end load). Sometimes these fees are reduced for larger investments. The draw to mutual funds is the professional management, diversification, affordability and liquidity of the funds. The downsides can be shareholders fees despite negative returns, lack of control and price uncertainty. One of the various types of mutual funds are the money market funds. They are a lower risk mutual fund investment even compared to other types of investments. The types of investments are regulated to only include, high quality, short term investments which are controlled by the US government, US corporations, as well as local and state governments. Their goal is to keep their net asset value (NAV) at a dollar per share. While it possible for the NAV to fall below a dollar, it is rare. There is also the possibility that inflation will outpace the investment returns over time.Bond Funds are a middle risk mutual fund investment. They pursue investment strategies that are meant to yield higher returns. Since they are not regulated to the type of bonds they invest in there are multiple risks associated with bond funds. These include a credit risk if the entity that issued the bonds is not financially credible to pay up on their debts. This is less of an issue if Treasury bonds or insured bonds are invested in. A prepayment risk can be involved if the bond issuer decides to pay off the bonds early and possibly re-issue them at a lower interest rate, especially if the interest rates have fallen nationally. This is tied in with the last issue of the bond value going down due to interest rate fluctuations.Stock funds are the highest risk in mutual funds on average. Stock prices can and do fluctuate greatly for a number of reasons which makes this the most volatile value on a day to day basis. However stocks have performed better over the long run compared to bonds and treasuries securities historically. There are four main types of stock funds: growth, income, index, and sector. Growth funds invest in stocks that may not yield a regular dividend but have the potential for good capital gains, income funds focus on stocks that pay regular dividends, index funds intend to get the same return as a particular market index by investing in all or a good number of stocks in that index, and sector funds are aimed at a particular stocks in an industry such as technology or entertainment.As you can see, there are many types of mutual funds to choose from. By doing some research and talking with professionals you can be assured of finding the fund that fits your particular needs well.

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