Mutual Funds

A mutual fund is a kind of investment that uses money from many investors to invest in stocks, bonds or other types of investment. A fund manager (or "portfolio manager") decides how to invest the money, and for this he is paid a fee, which comes from the money in the fund.

Types of Mutual Funds

There are four primary types of mutual funds: • Money Market Funds have the lowest returns because they carry the lowest risk. Money market funds are legally required to invest in high-quality, short-term investments that are issued by the U.S. government or U.S. corporations. They tend to keep their NAV around $1.00 per share. • Bond (Fixed-Income) Funds are somewhat more risky than money market funds. They are not legally restricted to certain qualities of investments. There are many different types of bonds, so you should research each mutual fund individually in order to determine the amount of risk associated with it. • Stock (Equity) Funds carry the greatest risk alongside the greatest potential returns. Fluctuations in the market can drastically affect the returns of equity funds. There are several types of equity funds, such as growth funds, income funds, index funds, and sector funds. Each of these groups tries to maintain a portfolio of stocks with certain characteristics. • Hybrid Funds invest in a mix of stocks, bonds and other securities. Many hybrid funds are funds of funds; they invest in a group of other mutual funds.