By Kumar Balani
Mutual funds are pools of investment assets (also known as bonds, stocks or other securities) managed by professionals that work for companies. These professionals are knowledgeable and experienced in making these assets and securities increase in value over time.
There are many types of such assets and their purposes vary, depending on investors’ various goals, intentions, and needs.
There are, for example, equity funds, and fixed income funds, for investors who want to receive a pre-determined or set amount of income on a regular basis from funds they set aside, sort of like interest in a certificate of deposit or CD. A variation of an income fund is a variable income fund, when interest rates are fluctuating. Funds may also be categorized as index funds, which are passively managed funds that track the performance of an index, such as a stock market index or bond market index, or actively managed funds, which seek to outperform stock market indices but generally charge higher fees.
Primary structures of mutual funds are open-end funds, closed-end funds, and unit investment trusts.
Money market mutual funds may be “temporary parking spaces” wherein investors want to receive smaller amounts of income invested in money-market accounts for short periods until they decide where they want to invest for longer periods of time,
Another type of mutual fund is a bond fund, wherein your money is invested in corporate bonds or bonds issued by any of the thousands of public companies. Another type of bond fund is government bonds, issued by any level of government: national or federal, province or state, or municipal or city.
Probably the most well-known type of mutual funds are stock mutual funds. These could be value funds or growth funds. A value mutual fund is one that invests in companies that are usually characterized by lower PEs or price-to-earnings ratios, whereas a growth mutual fund invests in companies with higher PE ratios.
There are also specialty stock mutual funds in stocks of companies focused in particular fields or industries such as agriculture, and banking. biotechnology, distribution, education, finance, food, lending, pharmaceutical firms, real estate, research, space, technology, transportation, and a host of other areas. The advantages of mutual funds include economies of scale, diversification, liquidity, and professional management.
