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Mutual Fund Regulation: Categories


This article is from the Investing Articles: Mutual Funds series.

Mutual Fund Regulation: Categories

Today's mutual fund universe is composed of funds with a wide variety of investment objectives. While labels may vary, most funds, load and no-load, fall into one of the following categories:

Funds Seeking Capital Gains
  • Aggressive Growth Funds seek maximum capital gains. They may try to enhance total return through investing in smaller more speculative companies or through investment techniques like market timing, leveraging, or the use of options and futures.
  • Growth Funds generally invest in larger, well-established companies whose long-term earnings are expected to grow more rapidly than most. They may also invest in companies with prices that are low relative to earnings or to book value.
  • Sector Funds forego broad diversification, seeking capital appreciation by investing only in companies within a particular industry group (utilities, drug companies, banks, etc.).
  • Precious Metal Funds invest in the stocks of companies that mine gold and other metals. They may also invest in bullion and coins.
  • Global Equity Funds invest in stocks worldwide, including the United States.
  • International Equity Funds invest primarily in non-U.S. stocks. While these funds can add greatly to diversification they may also expose investors to currency exchange risk.
Funds Seeking Capital Gains and Income
  • Growth & Income Funds aim for a steady return, with protection of principal. They seek to invest in companies that will experience earnings growth as well as companies that pay high or growing dividends.
  • Flexible Funds give managers wide latitude in responding to changes in the markets and the economy. Sometimes called Asset Allocation Funds, portfolios may be blended between stocks, bonds and cash equivalents or completely invested in a single asset category.
Funds Seeking Income
  • Corporate Bond Funds seek to generate current income by investing in fixed-income securities issued by corporations.
  • Government Bond Funds typically invest in government securities. These may include U.S. Treasury issues, mortgage-backed agency securities like Ginnie Maes, or a combination of both.
  • Municipal Bond Funds invest in bonds issued by state and local municipal entities. In most cases, income earned on these securities is exempt from federal taxation and from state taxation if the investor resides in the state in which the bond was issued.
  • Global Bond Funds invest in fixed-income securities of governments and corporations throughout the world, including the U.S.
  • Equity Income Funds seek a high level of current income by investing primarily in the stocks of companies that are expected to pay high or rising dividends.


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