Types of Mutual Funds

The type of the mutual fund is very often stated in its name. There are many different types of mutual funds, each with their own goals and ambitions for producing a positive return through various ivestment vehicles. Often, the name of the fund will give you plenty of information on what the mutual fund intends to do and how it will accomplish its goals.

Aggressive Growth

Aggressive growth mutual funds look for investments that can grow the investment of their investors quickly. These funds are usually heavily invested in the stock market and look for companies with high growth rates and low price to earnings multiples to get large returns over a long periods of time. Aggressive growth funds are unlikely to invest in big names and would prefer mid cap stocks that still have room and time to grow into large cap stocks.

Value Funds

Value mutual funds look to buy stocks that are selling below what they should be. These funds boast holdings in stocks that trade for low PE ratios relative to their market. Value funds are invested in large cap and blue chip stocks, as well as a reasonable amount in bonds to give stability. These are generally catered to investors who want stock market returns near retirement without too much risk to the downside.

Bond Funds

Bond funds are those that invest almost exclusively in bond debt of all types. These funds also utilize money market accounts and other fixed income type investments to produce a solid return while protecting capital. All bond funds are seemingly made equal as the difference in returns of the different bond funds are very slim.

Target Date Mutual Funds

Target date mutual funds are the convenience of the investing world. Simply pick a date of which you would like to retire, and the manager will allocate money into different investments depending on your retirement horizon. Target date funds with a closer date are generally heavily bond oriented than those with longer target dates. Be careful, however, as target date mutual funds often have high fees because they are sold as the "fund of funds," or rather, mutual funds that invest in other mutual funds. Target date mutual funds should generally be avoided, as the investor should know more about their retirement aspirations than a mutual fund manager. Don't be fooled; these aren't nearly as personalized as they sound.

Large Cap, Mid Cap, Small Cap

These mutual funds invest only in stocks with certain market caps. Small cap funds are great for younger investors looking for above average returns and more risk, while large caps favor the older investor with less margin for error.

Emerging market funds

This is where mutual funds start becoming exciting. Emerging market funds invest in stock markets around the world in developing nations. Their holdings are often in countries with greater geopolitical risks and high inflation, which makes these funds a hit or miss. It should be noted that when domestic funds are performing poorly, emerging market funds always come in with an over the top result.