When you start investing in mutual funds, you will need to choose from a large selection. Mutual funds are available in many different kinds and in different levels of risk. Since they are based on stocks, among other things, there will also be a reflection on the market of how well certain stocks are performing. Here are some types of mutual funds that are available for you to buy.
Mutual Funds Reflect the Market
If you are aware that certain types of stock are not performing well at the time you are looking to buy, then you can skip over those mutual funds that deal with low performing stock. Remember that a mutual fund is composed of various stocks, bonds, and other things, and will reflect that market.
Different mutual funds, however, cover the markets differently, giving you either a broader base of protection or a narrow one if it concentrates on a specific market sector. You can buy mutual funds by market sector, and in some cases, by geographic location – such as a particular country.
Load and No-Load Funds
Mutual funds are generally available as either a load fund or a no-load fund. All that means is that either there is a sales fee associated with it or there is not one with it. The value of the mutual fund is not necessarily determined by these criteria, however, so you can find good funds under either term.
Types of Funds
Several different types of mutual funds are available for you to focus your investments. These include four kinds:
o Bond Funds
Bond funds are made up of government, municipal or corporate bonds and serve as a loan to one of these agencies. As the loan is slowly repaid, you gain interest. This will generally provide you with a stable but lower rate of interest.
o Money Market Funds
These are low interest loans that are made either to state or local governments. They are very stable but on the low end in interest when it comes to mutual funds. They are generally short-term and can last anywhere from one day up to about a year. An advantage is that they are generally tax-free if it is for the state you live in, and free from Federal tax.
o Stock Funds
This type of fund will potentially give you the highest interest rate. They are the most commonly sold funds, and can bring a lot of growth to your portfolio. Be careful of investing in one sector only, as this can lead to costly losses if that sector fails.
o Mixed Assets
As its name implies, it is a mixed bag of stocks and bonds to provide you with a more stable portfolio through wider diversification. The bonds offset the rising and losses of the stocks and should provide you with a mix that is good for the long haul.
You can choose from a variety of types of funds to make up your perfect mix. Some of these can also match your risk level by giving you a conservative, moderate or a high level of risk.
When you look to purchase mutual funds, be sure to compare companies, costs, and all other features before you buy. Look at the age of the company your fund is from, the type of stock, your level of participation, and how much assistance the fund provides. Companies vary, and the degree of protection you have may vary, too.