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This article is from the Investing Articles:
Mutual Funds series.
Mutual Fund Regulation: Categories
Today's mutual fund universe is composed of funds with a wide
variety of investment objectives. While labels may vary, most funds,
load and no-load, fall into one of the following categories:
Funds Seeking Capital Gains
- Aggressive Growth Funds seek maximum capital gains. They
may try to enhance total return through investing in smaller more
speculative companies or through investment techniques like market
timing, leveraging, or the use of options and futures.
- Growth Funds generally invest in larger, well-established
companies whose long-term earnings are expected to grow more rapidly
than most. They may also invest in companies with prices that are low
relative to earnings or to book value.
- Sector Funds forego broad diversification, seeking capital
appreciation by investing only in companies within a particular
industry group (utilities, drug companies, banks, etc.).
- Precious Metal Funds invest in the stocks of companies that
mine gold and other metals. They may also invest in bullion and coins.
- Global Equity Funds invest in stocks worldwide, including
the United States.
- International Equity Funds invest primarily in
non-U.S. stocks. While these funds can add greatly to diversification
they may also expose investors to currency exchange risk.
Funds Seeking Capital Gains and Income
- Growth & Income Funds aim for a steady return, with
protection of principal. They seek to invest in companies that will
experience earnings growth as well as companies that pay high or
growing dividends.
- Flexible Funds give managers wide latitude in responding to
changes in the markets and the economy. Sometimes called Asset
Allocation Funds, portfolios may be blended between stocks, bonds and
cash equivalents or completely invested in a single asset
category.
Funds Seeking Income
- Corporate Bond Funds seek to generate current income by
investing in fixed-income securities issued by corporations.
- Government Bond Funds typically invest in government
securities. These may include U.S. Treasury issues, mortgage-backed
agency securities like Ginnie Maes, or a combination of both.
- Municipal Bond Funds invest in bonds issued by state and
local municipal entities. In most cases, income earned on these
securities is exempt from federal taxation and from state taxation if
the investor resides in the state in which the bond was issued.
- Global Bond Funds invest in fixed-income securities of
governments and corporations throughout the world, including the U.S.
- Equity Income Funds seek a high level of current income by
investing primarily in the stocks of companies that are expected to
pay high or rising dividends.
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