The types of funds you need to understand

These days there’s a mutual fund available to suit every type of investor, big-time, small-time, risk-averse, risk-lover. There are now over 10,000 mutual funds in North America alone, and that means there are more mutual funds than stocks. So of all these types of funds, which is the best for you and your situation?

You need to understand that each mutual fund has different risks and rewards. On a very basic level, the higher the potential return, the higher the risk of loss. And even though some funds are less risky than others, all funds have some level of risk – but you can’t get away from a little bit of risk to be honest. This is a fact for all investments.

The Types of Mutual Fund available

Each fund has a designated investment objective that then dictates the fund’s assets, regions of investment and investment objectives. Basically, there are three varieties of mutual funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)
3) Money market funds

All mutual funds are basically variations on these three classes of asset. So Growth Funds are those equity funds focusing on fast-growing companies, and equity funds that focus on the same fast-growing companies but in one sector or region would be termed Specialty Funds.

It’s easy to overcomplicate things but if you remember the three main types of funds then you won’t go far wrong.

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