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The Different Types Of Mutual Funds You Need To Know

April 10, 2012 | Comments: 0 | Views: 121

There are many different types of mutual funds for investors to choose from. No matter the type of investor that you are, you should be in position to know the best options to fit your investment style. In America for instance, surveys indicate that there are more than 10,000 types of mutual funds for investors to choose from. This actually portrays that there are actually more mutual funds than stocks. With a myriad options available and more to come for investors to choose from, choosing the right ones may turn out to be a daunting task. However, armed with all the necessary information, choosing the right investment option should be an unproblematic task.

It is imperative to understand that different types of mutual funds have different risks and rewards. Generally, the higher the potential return of investment, the higher the risk of loss. Though some may be more risky than others, all of them tend to have some form of risk. While you are investing, it is not possible to evade all the potential risks. Therefore, no matter the type of investment you are making, you have to be prepared of facing some risks only that some investments may be more risky than others.

All mutual funds usually have predetermined investment objectives. These objectives tailor the funds' assets, regions of investments and investment strategies. Generally, there are three main types of mutual funds and they include; equity funds (stocks), fixed income funds (bonds) and money market funds. Usually, you are likely to come across the variations of these three classes of assets.

While dealing with equity funds for instance, you are likely to encounter terms such as growth funds and specialty funds. Growth funds refer to equity funds that invest in fast growing companies while specialty funds refer to equities that invest only in companies of the same sector or region. Before you set out to investment journey, it is imperative to be equipped with vast information about the different trends and characteristics of your investment.

As earlier noted, one of the most common types of funds is the money market fund. The money market consists of short-term debt instruments mainly the treasury bills. This is a good investment option. Though you may not get extraordinary returns, you will not have to worry about losing your principal. Therefore, money market funds are common investment options especially for individuals who may prefer dealing with less risky investment options.

Of all the main types, equities form the largest percentage. Equity funds refer to the funds that invest in stock. Usually, the investment objective of this class is long-term capital growth with some income. There are many forms of equity funds since there are numerous categories of different equities. And all of these fall under the broad umbrella of mutual funds.

Taking the time to learn the various options of mutual fund investing can make your investment procedures much easier and profitable. Some of the better ones for the beginning investor are money market mutual funds and commodity mutual funds.

Source: EzineArticles
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