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Type of Mutual Funds
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Even some of the mutual funds recommend individualized offerings to meet investors’ needs. Having said that, it is important for you to know the type of mutual funds that is available in the market.
Sector Funds
Sector funds restrict their investments to a particular segment of the economy. For example, Munder NetNet buys only internet related stocks like Yahoo, eBay, Monster Worldwide, InterActiveCorp, Ameritrade, VeriSign, etc.
Besides, Fidelity has a whole stable of sector funds; from Fidelity Select Insurance Portfolio, Fidelity Utilities Fund and Fidelity Select Banking Portfolio to Fidelity Select Automotive Portfolio. The idea is to give investors to emphasize on specific industries whenever they think those sectors might heat up.
Blend Funds
These funds vary across the board. They invest in more than one type of stock, bond or both. For example, they can invest in both high growth technology stocks and cheaply priced automotive companies.
The Vanguard 500 Index fund invests in every company in the S&P 500 and could therefore qualify as a blend fund. Honestly, the nature of blend funds makes them very difficult to classify in term of risk.
Value Funds
Value funds like to invest in companies that the market has overlooked. They search for stocks that have been undervalued, or those that are priced low relative to their earnings potential.
But sometimes, these values stocks are facing short term problems where the market might be taking some time to realize its true value; that fund managers believe will eventually be resolved.
Growth Funds
As their names implies, growth funds tend to look for the fastest growing companies in the market. Growth fund managers are willing to pay premium and take more risk for their stocks in an effort to build a portfolio of companies with above average momentum, or price appreciation.
Since the emerging market like India, China and Vietnam grow the most, some growth funds invest overseas than locally.
Micro-Cap Funds
This type of mutual funds looks for companies with market values below $250 million. These companies tend to be either start-ups or companies about to exploit new markets. With this small stock, the risk is extremely high but its growth potential is exceptional.
Mid-Cap Funds
These funds invest in stocks that in the middle of capital value range; those with market capitalization of between $1 and $6 billion. The stocks at lower end of this range are likely to exhibit the growth characteristics of smaller companies, and therefore add some volatility to these funds.
Small-Cap Funds
Small-cap funds focus on companies with market values below $1 billion. Their degree of volatility often depends on the aggressiveness of their manager. Aggressive small-cap managers buy hot growth companies and assume high risks in the hopes of high rewards.
More conservative managers look for companies that have been beaten down temporarily. Small –cap value funds are not as risky as small-cap hot growth funds, but they can still be volatile.
Index Funds
For many investors, index funds are by far the easiest and most effective way to go. This type of mutual funds simply buy all the stocks or bonds in the chosen market index with the goal of matching that index’s performance.
If your goal is long term growth without the need for too much mistake, these funds are your best bet.
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