There are many mutual funds types that both beginners and experienced investors can take advantage of. All these are meant to help investors diversify their investment portfolio in order to reduce the risks involved in mutual fund investment. If you are among those people who have been wondering how you can diversify his mutual fund investment, then you are at the right place. I will highlight the various types of mutual funds available in the market for all those keen on diversifying their portfolio.
Mutual fund type #1: Equity funds
These are the funds that are invested in stocks. Equity funds are the riskiest types of mutual funds and an investor must always know that he can lose all his money. But at the same time, they grow very fast when compared to other types of mutual funds. There are a number of equity funds that an investor can choose from. These include income funds, value stocks, large-cap stocks and many others.
Mutual fund type #2: Money market fund
These are funds that invest in short-term fixed income securities. Even though these funds have a lower potential return, generally, they are safer than other mutual funds types. Some of the common money market funds include bankers’ acceptances, government bonds, treasury bills commercial paper and certificates of deposits.
Mutual fund type #3: Index funds
These are the type of funds meant to track the performance of a specific index over a certain period. The index funds will always determine the value of mutual funds. When the value of index funds goes down, so does the value of mutual funds and vice versa. Typically, index funds are less costly when compared to other actively managed mutual funds types. This is simply because the managers d not have t conduct research about them. Also, the number f investment decisions made about them are relatively lower than those of other mutual fund types.
Mutual fund type #4: Fund-of-funds
These are funds that usually invest in other funds. Their purpose is to help the investors make asset allocation and diversification in an easier way. Their returns are actually higher than the stand-alone mutual funds.
Mutual fund type #5: Fixed income funds
These are meant to buy investments that pay a fixed rate of income over time like the various types of bonds. The aim is to have a regular source of cash coming into the fund. Among the investments that these type of fund are put include corporate bonds, government bonds, and others. However, when investing in these funds you need to be careful. This is because there are those that are generally riskier such as the corporate bonds. Government bonds are usually less risky thus can be a good choice.
Knowing things to avoid when investing in mutual funds is just the beginning of your mutual funds’ investment journey. Learn the various types of mutual funds available is the next and critical step.