Investing Basics: Mutual Funds

When you buy shares of a mutual fund, your money is pooled with other shareholders’ money and invested in a portfolio of securities (stocks, bonds, etc.) An investment in a mutual fund offers you diversification and management by professionals.

Mutual funds have no guarantee of good returns or safety of your investment; they go up and down just like the rest of the market.

There are several different kinds of mutual funds, each with different investment objectives. If you decide to put your money into a mutual fund, you should look for one whose objectives match your own investment objectives and financial needs.

The different categories of mutual funds include these major classifications:

• Aggressive growth or capital appreciation funds invest in smaller companies, looking for growth that will result in capital gains income rather than ordinary dividend and interest income. Because of their speculative nature, these funds are in the high risk category, giving you the chance of highest return as well.

• Growth funds buy stocks that are expected to increase in value in the future. They are somewhat less risky than aggressive growth funds, produce very limited income, and are seeking long-term capital gain returns.

• Income funds are those investing in securities to produce current income through dividends and interest, rather than long-term increase in value and capital gains.

• Growth and income funds are aiming for both income and long-term growth. They invest in blue chip companies that pay reasonably good dividends and whose stock tends to increase in value over a period of time read more...

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