Bond funds can have many different risk levels depending on the maturity of the bond, who issued it, its credit rating, and more. Bond funds are generally considered safer than equities, which also means they often have generally lower returns. But they often earn a higher return than money market funds, which also invest in debt securities.
Money market mutual funds typically invest in low-risk debt securities. In fact, federal law requires that they only invest in certain short-term, high-quality investments. Investments you may expect to find in a money market fund include U. Treasury bills, certificates of deposit CDs , commercial paper, repurchase agreements, and more.
Some may specialize in only holding short-term government securities, while others are broader. Money market funds are often considered a relatively safe place to park money, but because of their low returns compared to other mutual funds, they may not be appropriate for building wealth or preparing for retirement.
A balanced fund, also known as a hybrid fund, is one that invests in a mix of stocks, bonds, and other assets. They provide even greater diversification than a simple equity or fixed-income fund. A common example of a balanced fund is a target date fund, which tracks a particular retirement date and adjusts its holdings over time according to how many years until the date associated with the fund.
While the four types of mutual funds listed above are the primary types, there are also plenty of more niche mutual fund categories. Other types of mutual funds you may come across or invest in include:. The primary benefit of mutual funds is the diversification they provide to your portfolio.
While investing in a single stock or a handful of stocks could be profitable, it creates risk in your portfolio. As a result, your risk of loss due to the performance of a single company or industry is lower. For example, you buy shares in five different tech companies. Instead, you want to also have investments in companies that are outside of tech.
As long as you keep checking in and making sure your investments are working for you, you can keep depositing money and let the account work on its own. You can invest in mutual funds through any major brokerage firm. The best type of mutual fund for you depends on your investment goals, time horizon, risk tolerance, and the holdings currently in your investment portfolio.
Because of their diversification, mutual funds help to reduce the risk in your portfolio from what it would be if you invested in individual stocks. That being said, mutual funds, like all investments, carry some level of risk. The return of a mutual fund depends on what assets it holds and how the market is performing. However, some mutual fund managers invest in the hopes of beating the market, while others invest in lower-risk securities to earn a below-market return.
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Read more. This statistic presents the number of mutual funds worldwide from to The number of mutual funds globally increased from approximately 66, in to approximately , thousand in Mutual fund types — additional information Mutual funds are a form of collective investment. There are different types of mutual funds available to investors, corresponding to the return expectation and risk level that they are ready to take. Equity funds are one of the most aggressive investment funds.
They offer the possibility of high returns, but in the occurrence of turbulence in the financial markets, the investors might be faced with the loss of their invested capital. The assets of the equity funds are almost entirely invested in equities , with the remaining part of the assets invested in the money market instruments. Depending on the fund strategy, the fund can invest in the shares of global companies or companies located in a specific area, single country or a specific industry sector.
Bond funds offer a safer choice to investors. They invest in fixed income securities of maturity over one year, such as treasury bills, municipal bonds or corporate bonds. The bonds perceived as the safest are those offered by the governments of the most stable economies worldwide.
Mixed funds, on the other hand, invest a part of the fund portfolio in equities and a part in debt instruments. The more assets invested in equities, the more aggressive the fund is.
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