Funds Beginner: Introduction to Mutual Funds

Introduction to Mutual Funds What Is a Mutual Fund and How Does It Work? Buying and Redeeming Mutual Funds Mutual Fund Expenses Mutual Fund Income and Distributions Stock Mutual Funds Bond Mutual Funds Money Market Mutual Funds Hybrid Mutual Funds Summary of Mutual Funds
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Hybrid Mutual Funds

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Hybrid Mutual Funds

There are mutual funds that do not specialize in a particular security such as stocks or bonds, but may instead combine several types of securities in their portfolios. These funds are structured to meet an objective such as rapid growth, matching a market index, or investing in one area of the economy. They use combinations of securities to meet their goals. We will look at several of these "hybrid funds."

Things To Know

  • Hybrid funds have any of a variety of aims.
  • Hybrid funds may seek to match an index, balance different investment objectives, etc.

Income funds

Income funds are structured to provide regular income dividends to their investors. These funds invest in "income securities" of corporations or governments (including preferred stock, bonds, and money market investments). Such securities yield relatively stable current income. They focus on paying dividends as their top priority while de-emphasizing the growth in value of their portfolios. Preservation of capital is a concern. Income funds are popular with investors who want stable income from their mutual funds.

Index funds

Index funds are popular among investors wishing to keep their mutual funds’ performance in line with "the market." These funds buy the securities that make up major market indexes. The advantage of index funds is that they are always in line with their market index. Their downside is that they cannot outperform the market. Some funds divide their holdings evenly among the various stocks. Some use dollar weighting so that bigger companies make up a larger share.

Balanced funds

Balanced funds seek to balance growth and income in one portfolio. To do this, they invest in common stock, preferred stock, bonds, and cash equivalents. Hypothetically, these funds have a "balanced" ratio of these asset types. Managers of balanced funds can, however, shift this ratio one way or the other to take advantage of high interest rates or stock market growth. Balanced funds generally have low volatility and are popular with investors seeking current income with growth potential.

Growth & income funds

Growth & income funds are similar to balanced funds. However, they rely mostly on growth stocks that pay dividends.

Funds that mix stocks, bonds, money market instruments, as well as other class assets are better able to allocate capital toward the end of achieving a particular investment goal. Such funds are used by investors with similar investment goals.