Mutual Fund 4

Types of Mutual Funds:
1. Money market fund:
These funds are concidered among the safer places to invest your money. Money market funds loan money on a short-term basis--from overnight to one year. They earn interest on the money they lend. They primarily lend money to government entities.

Why buy this fund: when you wnat to protect your money.

different types:
Regular funds
Government funds
Treasury funds
Municipal funds: state or local government
Single state municipal funds


2. Stock funds: the most common types of mutual funds. A stock funds is one that mainly invests in stocks
You should buy a stock funds if you are looking to growing your initial investment.

Different types:
Capitalization: it may invest in micro-, small-, mid-, or large cap companies
Industry: it may invest in one industry or sector
Country: it may invest in one or many countries or a specific region of the world
Analysis: investment selections based on fundamental or technical analysis
Objective: A stock fund may be aggressive growth, growth, income, or growth and income

sector fund: is one that invests primarily in a group of  industries that have similar interests

3. Bond funds: is one that primarily invests in bonds

How it works:
Yield: this is the percentage of your investment
NAV: If  interest rates drop, the NAV of the fund will tend to rise. if rates rise the NAV will tend to fall
Average Maturity: this is the average number of years until the bonds end( mature)
Credit rating: Generally, better credit ratings of the fund's bonds means lower yields but higher stability.

different types:
Short-term: less than 5 years maturities
Intermediate term: 5-15 years
Long- term: 15-30 years
Corporate: you are lending your money to a corporation
Government:
Municipal: you are lending money to state and local governments and their agencies

Bonds are rated primarily Moody's and standard and poor's rating services.A+ through B

4. Balanced Funds: this fund mixed stocks and bonds, it might contain about 50-65% stocks and the rest in bonds

you buy a balanced fund when you are looking for growth and income but want to be protected during down market periods.

Different types:
Regular balance funds: usually keep their ratio of stocks to bonds fairly constant

Asset allocation funds: may switch the ratio of stocks to bonds

Balance funds tends to buy relatively high grade bonds and tend to diversify more in stocks than other funds.

Risk:
Pushing stock ratio to the limit: up to 75% in stocks, leaving only 25% in bonds. this is not considered a well balanced fund

Buying lower grade bonds

Buying high risk stocks

It is important to know what the fund you buy can do to improve its performance. you can find this information in the details section of the prospectus

5. Tax-Related funds
Any funds that have specific tax issues associated with them, they may be called tax-free; tax-exempt; tax-sheltered; or tax-advantaged

you buy a tax-related fund when you are looking to protect your income from taxes or when you want to avoid paying taxes altogether on your investment earnings.

Tax-exempt funds are typically identified as municipal bond funds or tax-free funds

Different types:
Municipal bond funds: bonds issued by state and local governments and affiliated entities. Income earned by these funds and paid to residents of the issuing bond's state are free from federal, state, and any local taxes. a state other than your home state, the income you earn will be taxable.

Tax-free funds:

Government bond funds: A portion of the income earned may be taxable

6. Index funds:
An index fund tries to equal the returns of particular segment of the market by buying the same securities as a specific index tracks. Decisions are made in response to market movements and no fund manager is needed to make buy or sell decisions.

Index funds have lower fees than others mutual funds because they are not actively managed.

when you looking to pay lower fees for a mutual fund and wanted to buy a fund that followed a particular segment of market as measure by a specific index. it is usually considered fairly diverse( lowering risk), because it may buy hundreds or even thousands of stocks

7. Foreign Funds
Foreign fund is one that mainly buys securities issued in foreign countries. it may be a stock or bond fund or a combination of both.

you buy it when you looking to invest in growing commerce in other areas of the world

American depository receipts(ADRs) are certificates which represent shares of a foreign company.

8. Unit investment Trusts(UITs)
UIT us a type of fund that buys specific securities and holds them for a set amount of time. this time period is called the life of the trust. A UIT doesnot trade any of the securities during the life if the trust. It holds onto them for better or for worse.

you buy it when you believed the specific set of securities it owns.

9. Socially Responsible Funds: These funds restrict their investments to whatever they define as socially responsible.

10. Option Funds: These are high-risk investments in which the manager of the fund buys and sells securities known collectively as derivatives.

11. Dual Purpose funds: is a closed-end fund that invests equal dollar amounts in income producing securities and capital appreciation potential securities.

Income shareholders: receive a set, minimun rate of return and are paid all of the dividend and interest income( less expenses) produced by the fund.

Capital shareholders: on the other hand, receive no periodic income, but are entitled to all the fund's assets after the fund terminates and the income shareholders have been reimbursed.

12. Real Estate Investment Trusts(REITs)
these funds were developed for people who want to invest in real estate, but are not willing to take on the risk involved in limited partnerships.

13. Natural Resources Funds: they invest primarily in energy, oil, wood, and gas products. The reason for these funds is a belief that natural resources are a good asset allocation.

Family of funds: simply refer to mutual fund company that offers many different types of funds. usually they will offer:
Additional services: such as easy switching from one fund to another (sometimes by phone) within the family

bookkeeping easier

reduce expenses

Information about funds:
Mutual fund reviews:
Barron's
Money Magazine
Business week
Forbes
Fortune
Consumer Reports
The wall street journal
Investors business daily
Morningstar Mutual fund report
Value line mutual fund survey

Mailings from the fund
Prospectus

statements

year-end summary

The internet:
quicken.com
smartmoney.com
fundstyle.com

Attention 401k account holders:
401k investors donot receive prospectuses for each fund. the plan sponsor (the employer) receives the prospectuses and the information is then put into something called a summary plan description(SPD) that is distributed to all participants

Who to turn to for help:
Securities and exchange commission (SEC):www.sec.gov

National association of securities dealers(NASD): www.nasd.gov

State securities regulators

Account protection:
The securities investor protection corporation(SIPC) protects investor's accounts from a fund or broker going bankrupt for up to $500000 per account.

Rating services:
Morningstar Mutual funds, which has become a standard for mutual fund reserch

Lipper Analytical Services

NO-Load Fund analyst

Investor Education:
The investment company institute(ICI) is the national association for the mutual fund industry.