There are currently over 8,000 mutual funds available with many new
ones being introduced each year. Before you begin investing in a mutual
fund, make sure the investment strategy of the fund is in line with
your financial goals and risk tolerance.
Three Major Fund Categories
Most mutual funds fall into one of three main
categories — money
market funds, bond funds and stock funds. Each type has different features
and different risks and rewards. Generally, the higher the potential
return, the higher the risk of loss.
- Money market funds invest in very low-risk
securities and are designed to provide a
place for holding cash or cash equivalents. There are two types
of money market funds: taxable and tax-free.
The latter invest in municipal securities whose
interest is generally exempt from federal
income tax.
- Bond funds are also known as debt funds.
When you purchase bonds, you are essentially
making a loan to the bond’s
issuer. Bonds are issued by companies and federal, state and local governments.
- Stock funds are also known as equity funds.
In becoming stock shareholders, these funds
become owners of the companies that issued
the stock.
The USAA Educational Foundation publication,
Stocks And Bonds, offers more information.
Advantages And Disadvantages Of Mutual Funds
Mutual funds have become one of the
most popular forms of investing in
the United States, with over $11 trillion in assets
as of August 2007, according to the
Investment Company Institute (ICI).
Like any investment, there are advantages
and disadvantages you should consider
before investing. Investing In Mutual Funds
Managed by professional managers,
an investment portfolio is designed
to achieve specific objectives. Portfolios
typically contain 50 to 200 different
stocks, bonds and other securities. The composition
of
each portfolio varies
according
to the fund’s investment
objectives and the level of risk
permitted. The Features
Of Mutual Funds
chart provides some of the advantages
and disadvantages of investing
in mutual funds. |
Basic Money Management
Basic Money Management
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