Types of Mutual Funds

There are many types of mutual funds that offer you a way to enter the stock market. Some are considered safe investments and some are considered risky investments, the treynor ratio and sharpe ratio can be used to measure risk and reward from these funds.

Currently 80 million Americans invest in some 10,000+ mutual funds. There are 4 types of mutual funds that are available to invest in.

1. Money Market Funds These are considered the safest investments but have the lowest payouts. Typically they look for short term debt instruments mostly Treasury Bills as a way to secure a return. Typically these funds will pay you more than the average bank savings account but less than the average CD.

2. Fixed income funds or bond funds are build strictly for cash flow. They invest normally in bonds which are government and corporate debt. These are also thought to be safe investments because a company’s stock does not have to go up, but they have to pay off their debt.

3. Balanced Funds balance between stocks and bonds to give off a diversified way of approaching the market. Normally these funds have set rules to how much they can afford to allocate to any 1 investment. For example, a fund might trade 30% bonds and 70% equities. These balanced mutual funds are similar to Asset allocation funds, except asset allocation funds do not have a set amount that has to be invested in each form of investment.

4. Equity Funds these funds trade strictly equities. Because equities give off the best long term investments these funds are typically outperform the rest. But they also have the greatest risks. There are 3 types of equity funds,

a. Global funds and international funds. These funds consist of equities of countries that are outside your home country.

b. Specialty funds. These funds forget diversification and only concentrate on a specific sector of the economy such as, healthcare, finance, ect. These can be broken down more into regional funds, sector funds, and socially responsible funds.

c. Index funds. These funds merely track the market averages like the S&P and Dow Jones figuring that most mutual funds cannot beat the market average.

d. Socially responsible funds and vice funds. Socially responsible funds invest only in companies that do not participate in unethical business activities. This includes gambling, tobacco, ect. The vice fund however only invest in unethical stocks because they believe they will not go out of business due to human nature.

Of course when you deal with mutual funds you deal with costs as well. This includes the yearly bill which charges you for hiring of fund managers, administration cost, and the 12b-1 fee. It also includes the fees for the transactions that were made in your account. Normally these fees will set you back 1.3-1.5% of your account.

But be warned, price does not guarantee better returns on your investments. This contradicts what most people believe.

There are many different types of mutual funds to choose from, but are they right for you? Only you can answer that. These funds allow you to put your money into the market and hope to make you money in the long term. You do not need to manage them or play any active role in your account, just buy it and forget it. If that is you then purchasing a few funds might be good for you.

If you would like to play a more active role in your investments in hopes for getting higher returns, you might be better off investing, or trading individual stocks. And in fact I personally Don't invest in mutual Funds.

Other Factors to Consider

Those are the different types of mutual funds. Now here are a few factors you can look at when deciding weather or not a mutual fund is a good investment.

Allocation Rate - Percentage of your money that goes to the investment.

Asset Allocation Funds - Funds that invest in different asset classes.

Attribution Analysis - The strategy of picking the best mutual funds.

Closed Ended Fund - A type of fund that can be traded like regular stock.

Commingled Fund - Type of mutual fund where money is pooled.

Green Mutual Funds - A few funds to look at that which invest into eco friendly companies.

How Do Mutual Funds Work? - Ever wounder how a mutual fund works?

Master Feeder Fund - A fund that invest in another Fund.

Mutual Funds FAQ - Some Facts about mutual funds.

Mutual Fund Prices - How much do funds really charge?

Portfolio Turnover - How often a fund buys/sells a position.

Should You Invest in Mutual Funds? - Mutual Funds are very popular, but are they the best investment option out there?

Sortino Ratio - Lets you determine the risk and reward of a fund.

Go From Types of Mutual Funds to Fundamental Analysis