Different Types of Mutual Funds Explained!
There are many different types of mutual funds and new investors may become confused or lost quickly if these fund types are not understood. The variety of fund types can cover a wide range. The basic fund types listed and what these funds do can help investors make the right fund choices for their investment portfolios. No load mutual funds are funds which do not carry any load fees, and these investment choices often have lower expense ratios and costs than load funds. Money market funds are funds designed to provide very low risk for capital that is needed in a short time, but these funds are not normally ideal for long term investments because the returns offered do not usually beat the inflation rate changes over long periods.
Some types of mutual funds are sector or asset class specific, while others aim for diversity with the fund holdings. Asset allocation funds employ specific asset allocation strategies so that the fund portfolio is balanced and highly diverse. Large cap, medium cap, and small cap funds identify investments within the specified cap level to purchase. Aggressive growth mutual funds tend to buy investment choices which are very aggressive and offer high yields, but this strategy also involves much higher risks as well so many investors avoid this fund type in most cases. Emerging market funds will usually choose investments in emerging markets and underdeveloped regions, and these funds are also considered high yield and high risk. This fund choice is not ideal for investors who are conservative and unwilling to take large risks with their investment capital.
Stock funds are one of the types of mutual funds available to investors, and these funds primarily hold stock investments. Bond funds choose bonds for the investment portfolio. There are mutual funds designed specifically for certain sectors, such as energy funds and technology funds. These funds are not well diversified across all asset classes and sectors but for investors who are looking for specific sector or asset class to round out the investing holdings these funds can be a good choice. Index mutual funds have holdings that are very similar to the index being followed, such as the S&P 500 index. The fund will create a weighted portfolio that is close to the index followed in hopes of getting similar returns.
Other types of mutual funds include those designed for a specific duration. This can be short term, midterm, and long term. Blend funds combine growth and value investments for diversity coupled with good returns. Green mutual funds are somewhat new, and these funds only invest in companies and products that are considered environmentally friendly. Natural resource funds look for investments in natural resource companies and choices, and these funds may include the energy sector investments as well. Precious metals, telecommunications, and other sectors will have mutual funds that invest heavily in the selected sector. There are mutual funds available to meet any investment goals and strategies that you can possibly have. This is true regardless of your acceptable risk levels and investment goals.