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DIFFERENCES BETWEEN TYPES OF MUTUAL FUNDS
How many mutual funds exist?
There are 8,624 mutual funds. If you add in closed-ended funds, ETFs, and unit investment trusts, the number reaches 16,120.
What types of mutual funds exist?
Mutual funds can be divided into three broad categories: equity funds (stocks), fixed income funds (bonds), and money market funds (cash/cash equivalents).
What other subdivisions of mutual funds exist?
Mutual funds are broadly divided into three classes of investment types: value, blend, and growth.
What are "value funds"?
Value funds attempt to find stocks in companies that are trading below their inherent value because they are out of favor in the markets, but still have great products and services. Over time, the stocks that compose the portfolio should appreciate faster.
What are "growth funds"?
Growth funds identify stocks that have high potential for growth in their profits and share price.
What are "blended funds"?
Blended funds seek to combine value stocks and growth stocks, reducing an investor's risk over time.
What other types of mutual funds exist?
There are also international funds that invest exclusively in companies outside the United States; global funds that invest in companies both outside the United States and in the United States if they have strong sales and operations located worldwide; and regional funds that invest in a portfolio of companies in various regions of the world, such as Europe, Asia, and South America.
What about sector/specialty funds?
Sector funds seek to invest in companies in various specific sectors of our economy, such as health care, manufacturing, oil and gas, financial services, information technology, bioengineering, and the Internet. Because of their specificity, these funds tend
Investing in an oil refinery would be an example of putting money into an energy sector fund.
to have higher risks—but also higher rewards—if the mutual fund company finds the right basket of winners.
What is the final category of funds?
The last category of funds is index funds. Index funds purchase a share in each of the stocks that compose a certain index, such as the S&P 500 or the Dow, and seek to mimic the returns the index may obtain. These funds have the lowest management fees, since there is very little management needed to maintain the portfolio; the managers are merely buying shares weighted exactly as the index. This enables an investor to minimize his risk by having the volatility of the portfolio distributed over dozens—if not hundreds or thousands—of stocks. Ultimately, the return you receive is the same as the return of that index in any given period of time.
What is an "open-ended fund"?
An open-ended fund is a mutual fund that has no restrictions on the number of shares it issues to the public, and is continuously buying and selling shares of its portfolio of stocks to both new and current investors. Most mutual funds are open to investors.
What is a "closed mutual fund"?
The managers of a closed mutual fund may decide that the number of investors and portfolio value is of a certain size, and they wish to limit the inflow of new capital into the fund. In this case, while the fund may be closed to new investors, current investors may continue to purchase or sell shares.
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