Types of Mutual Funds
Each Mutual fund carries its own risk factors as well as rewards. It is vital to know the difference between each mutual fund definition and research carefully before opening one. There are over 10,000 in North America alone so explaining each in detail in one article would not be possible. Every mutual fund is somewhat risky, the difference is some are more than others and for that reason, determining the right one for you is very important. It is impossible to get rid of all risk involved with mutual funds. Following are some of the different types of mutual funds.
The money market is mostly made up of short term debt tools such as treasury bills. While you won’t get excellent returns, the money market is considered a pretty safe place to keep your money. In addition, you won’t have to be concerned with losing your principal in this sort of mutual fund. Typically, the return associated with this sort of a mutual fund is about two times the amount you would see with a standard checking or savings account and just a bit less than your standard CD.
Income funds get their name from their purpose, to bring in steady income on a continual basis. In relation to mutual funds the terms “income”, “bond”, and “fixed income” are all tantamount. These particular terms indicate funds that specifically invest in corporate as well as government debt. The main goal of these funds is to produce a continuous cash flow, however, they do, in most cases, appreciate in value making them even more profitable. These funds are typically popular with retirees and more conservative investors.
These funds tend to pay a bit higher than CDs or money market accounts; however, they are not without their own risk factor. Bond funds can vary a lot depending on where they are invested. This is mainly because there are so many different types of bond funds. For instance, a fund which invests in government securities is much less risky than one which invests in junk bonds that are high yield. In addition, the higher the interest rate climbs, the lower the value of a bond fund becomes.
A hedge fund is used in a broad range of investment scenarios, such as binary trading options, forex trading, and just about all other forms of investing. Each hedge fund has its own list of strategies as well as risk factors and deciding which would be best suited for whatever your needs are may require sitting down with a professional financial planner.
The purpose of a balanced fund is to produce a safer investing environment by mixing income, capital appreciation, and safety. Typically the strategy involved with a balanced fund is to invest in a variety of fixed income as well as equities. Usually a standard balanced fund will have a formula of about 60 percent equity and 40 percent fixed income. In some cases the weighing will be restricted to a particular max or minimum for each of the asset classes.
To find out what the top mutual funds are and which would be best for you, depending on what you are trying to achieve, a web search can provide a wealth of information on each and how they may apply in your financial portfolio.