What is a ‘Mutual Fund’
A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Different Types and Kinds of Mutual Funds
Types of Mutual Funds
Equity funds invest in stocks of various sizes and domicile. For example, there are mutual funds that are classified as global, which have the ability to invest in both the U.S. and anywhere in the world. Mutual funds that are classified as domestic are mostly invested in the U.S. Growth funds typically invest in companies that are expected to have higher growth rates than others.
Fixed-income funds mainly invest in bond-oriented investments, such as corporate bonds and municipal bonds. You may come across a municipal bond mutual fund that is state-specific. For example, an Ohio tax-free bond fund typically invests only in Ohio municipal bond funds, so that interest received by the mutual fund holder is exempt from taxation at both the federal and state income tax levels.
Money market funds invest in high-quality, short-term debt instruments, such as government treasury bills (also known as T-bills). The returns on money market funds have historically been greater than savings and checking accounts but less than certificates of deposits. Please note that investments in money market funds are typically not guaranteed by the FDIC, as most savings, checking, and certificates of deposits are. It’s important to understand this prior to investing.