Friday, May 24, 2013

Getting to Know the Types of Mutual Funds

Types of Investments Getting to Know the Types of Mutual Funds Getting to Know the Types of Mutual Funds
By Bruce Sands
Mutual Funds are generally termed as a combination of debt and equity, or for those who cannot understand stock and bond. As an investor, it would be wise for you to know the different types of investments, and the different types of Mutual Funds. This kind of knowledge will eventually help you diversify your portfolio, leading into a much more secure and less risky portfolio.
1. Stock Funds - On top of our list are Stock Funds or better known as equity funds. They are generally considered as the most volatile type of Mutual Funds. This is because their value will rise and fall at a considerable rate over a very short period of time. Example, its value yesterday will differ today, and there is absolutely no way to point out with 100% accuracy what will happen to it. But, there is enough evidence to show that stocks perform better compared to other types of investments, especially when assessed on a relatively long period of time. This is because that the value of stocks is generally affected by the company's wellness, and most of the time, a good company will eventually flourish given due time and proper management.
Stock funds are further categorized in many sub-categories, namely: growth funds, income funds, index funds and sector funds, each of which have their specialties, risks and differ in dividends. Most of the time, experts and analysts conclude that Stock Funds are the best types of investments that can survive inflation and the rapidly decreasing value of dollar and other currencies.
2. Bond Funds - Bonds Funds, or also known as fixed income, are investment opportunities in which you invest in the debts of corporations and governments. By doing so, you are provided a steady stream of income through dividend payments. Most investors often include a small portion of Bond Funds in their portfolio, for the purpose of diversification and as a steady means of income. Bond Funds are often low-risk and also, often pay low. Even high-risk bond funds do not really have the same profit as compared to stock funds. However, they are much more predictable and easier to manage.
3. Money Market Funds - Money Market funds are probably the most low-risk out of all the Mutual Funds, and other investments for that matter. However, they are limited by law to only a few specific high-quality and short-term investments issued by the U.S government, U.S corporations, and other state and local governments.
Money Market Funds have this so-called NAV, or Net Asset Value, in which is the representation of the value of ones share in a fund. Usually, it is a constant $1 per share. However, the NAV may very well fall below $1 if the investments and funds perform poorly and below average.
There is, however, enough statistical evidence that Money Market Funds have lower returns as compared to Bond and Stock Funds. This means that Money Market Funds are relatively prone to inflation and hyper-inflation.
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Types of Investments

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