When you are researching mutual funds, you may be surprised to find out that there are over ten thousand mutual funds available on the market currently, with more being offered to investors every day. With so many options, it can be a challenge to know what types of mutual funds to invest in.
While there is a mutual fund to fit every investor’s style and investment objective, it is important to keep in mind that each mutual fund carries its own rewards and risks. As a rule, the higher the potential risk, the higher the potential returns. There will be funds that are less risky than others, but it is not possible to diversify all risk away.
A mutual fund’s assets are tailored to a predetermined investment objective which dictates the fund’s investment strategies, regions of investment, as well as the fund’s assets. There are three basic types of mutual funds for you to invest in : Money Market funds, Fixed-income funds (bonds), and Equity funds (stocks).
You can simplify your mutual fund research by using a fund screener that allows you to enter as much search criteria as possible to ensure the best potential investments for your unique investment objectives.
The mutual fund screener available through online broker ETrade is one of the most comprehensive in the industry, and gives you access to the information and tools you need to choose the best fund for you.
What Types Of Mutual Funds To Invest In? Money Market And Bond Funds
If safety is your goal, then the answer to the question, “what types of mutual funds to invest in?” is money market funds and bond funds. Both of these investment instruments offer income preservation, and low-risk.
A Money Market fund consists of short-term debt instruments, mostly Treasury bills. Money market funds are safe places to invest your money, although they offer low returns. You can expect to earn approximately two times the amount you would earn in a typical checking or savings account, and slightly less than the average return on a CD.
Bond funds, sometimes referred to as income funds, provide steady income through investments in government debt. The primary objective of these types of funds is to provide steady cash flow for its investors, although the fund’s holding may appreciate in value.
A bond fund will most likely pay a higher return than a CD or Money Market, but these funds are not without risk. Due to the fact that there are many different types of bonds, these investment instruments can differ considerably depending on where they invest. Bond funds are also subject to the risk of interest rate fluctuations, with the bond’s value falling as interest rates rise.
What Types Of Mutual Funds To Invest In: Equity Funds
If you are wondering, “what types of mutual funds to invest in for capital growth?”, it is important to take a look at equity funds. Equity funds invest in stocks, and represent the largest category of mutual funds. The investment objectives of most of these funds is long-term capital appreciation with some income.
As there are many different types of equities, there are many different types of equity funds. Funds can be classified by company size (market capitalization), value or growth funds, or blended funds which seek to strike a balance between value and growth stocks.
There is a considerably more risk involved in investing in equity funds versus Money Market or Bond funds, but there is also more potential upside. Carefully review a fund’s prospectus prior to investing any capital.
At online broker ETrade, everything you need to research mutual funds is right at your fingertips. You can search for and compare thousands of mutual funds, review their prospectus online, as well as access professional advice. This makes choosing the mutual fund that is right for you fast and simple.
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