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Types of Mutual Funds... Page 3
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Specialty Funds
- Socially Conscience Funds.
Also known as "green funds". Consist of
common stocks, bonds, or other securities that are "pre-screened" before
purchased. By using "screens", fund managers are able to filter out companies
that do not meet the fund's objectives. These may include companies that aren't
friendly to the environment, companies involved in the production of alcohol, tobacco,
firearms, or pornographic material, companies that aren't "gay-friendly",
companies that test products on animals, or companies that produce nuclear power. The
degree of risk and rate of return for Socially Conscience funds depend solely on the funds
objectives and type of investments. Best suited for investors who have strong political,
social, economical, or environmental commitments.
Index Funds. These funds attempt to mirror stock indexes, such as the
Standard & Poors 500, the Wilshire 5000, or the Russell 2000. Fund managers attempt to
replicate the the index's rate of return by investing all of their securities in the
index. There are no attempts to beat the index or select securities outside the index.
Index funds incur a low degree of risk -- in exchange for a potentially moderate rate
of return. Best suited for investors with a long-term investment horizon and who want a
broadly diversified portfolio. Lower fees and turnover ratios (less trading) add to the
fund's bottom line -- and your total return.
Balanced Funds. Also known as "hybrid" funds. Consist of
common stocks that have a potential for growth and bonds that provide current income. Bond
income is used as protection should stocks drop in value. When stock markets are strong,
however, balanced funds normally don't perform as well as straight stock funds. Fund
managers generally allocate a constant percentage of investments in both stocks and bonds.
Balanced funds incur a lower degree of risk than straight stock funds -- in exchange for a
conservative rate of return. Best suited for investors who need instant diversification
and want to stay away from the volatility of most stock funds.
Next: No-load vs. Load
Mutual Fund Calculators:
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• How do growth and income
funds compare?
• Which is better: a front
or back load?
• Which is better: load or
no load?
• How much do fees affect my
return?
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