What Types of Mutual Funds Are There?

Mutual funds come in a many types and are designed to meet the specific needs of investors seeking ways to increase their profits. Funds invest in a range of stocks, bonds, and commodities, either individually or collectively, depending on the time frame and risk.

Significance

Funds allow investors to purchase many different stocks and bonds to tailor a portfolio to an individual's risk tolerance. Mutual funds are easy to purchase and inexpensive to buy.

Types

Broad fund categories include U.S. and international stocks, corporate and government bonds of varying maturities, and commodity funds with holdings in precious metals, real estate and natural resources.

Function

Stock funds are designed to promote both growth through share price appreciation, and income through capital gains distributions. Bond funds focus on income through varying interest rates.

Time Frame

Investors who wish to grow their money and have a time frame of more than 10 years should put money in stock mutual funds. Money needed in the short term should be in bonds of varying maturities.

Benefits

Most mutual funds hold hundreds of different stocks and bonds; this diversification protects investors from losing all their money in case a single company goes bankrupt.