Common Types Of Mutual Funds
What Is A Mutual Fund?
The money for mutual funds is handled by a fund manager who is financial markets and investments expert and does thorough research and analysis before investing
MFs collect money from several investors and all the money put together is then invested.
Money Market Funds
These funds invest in short-term fixed income securities like government bonds, treasury bills, commercial paper and certificates of deposit.
They are generally a safer investment, but with a lower return than other types of mutual funds.
Fixed Income Funds
These funds buy investments that pay a fixed rate of return like government bonds, investment-grade corporate bonds and high-yield corporate bonds.
The aim is to have money coming into the fund on a regular basis, mostly through interest that the fund earns.
These funds invest in stocks and aim to grow faster than money market or fixed income funds - so the risk is higher.
You can choose from different types of equity funds based on sector/theme, large-cap stocks, mid-cap stocks, small-cap stocks, etc.
These funds invest in a mix of equities + fixed income securities with the aim to achieve higher returns against the risk of losing money.
Most of these funds follow a formula to split money among the different types of investments.
These funds track the performance of a specific index (eg the S&P/TSX Composite Index), and the value of the MF goes up or down as the index goes up and down.
These typically have lower costs since the fund manager doesn’t have to monitor it constantly.
These funds focus on specialised mandates such as real estate, commodities or socially-responsible investing.
Fund Of Funds
These funds invest in other funds. Like balanced funds, they try to make asset allocation and diversification easier for the investor.
The expense for fund-of-funds tends to be higher than stand-alone mutual funds.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.