Types of Mutual Funds: A Primer

There are many varieties of mutual funds and they each will have different strategies and different goals. Before you go shopping for your particular mutual fund match, you need to know what your investment objectives are. Do your needs demand maximum capital gains, or a high current income as an investment objective? Perhaps you are a risk taker and speculation is what you have in mind. An individual fund will have a particular policy and investment objective that makes it unique. Funds are categorized by their stated policies and objectives and within a category will be similarities in management style, risk levels and expected percentage of returns. Learn who you are and what you need in an investment vehicle by taking a risk tolerance quiz. This will help you understand what type of mutual fund will serve your investment needs best.

Following are the main types of mutual fund classifications:

Equity Income Fund: This is a mutual fund that invests in high yielding common stocks and is intended to provide current income and protect the invested capital. While the protection of the invested capital is important and by extension the realization of capital gains is also important, these issues are not the first goal of equity income funds. The funds invest mostly in high value common stocks, some convertible securities and an assortment of preferred stock, junk bonds and high grade foreign bonds. The strategy is to secure investments that will produce big dividend payouts first and produce price appreciation as a close second goal. Usually the equity income funds concentrate on high quality investments that are not as volatile as the general market and are a low risk stock investment.