Different Types of Mutual Funds and Their Investment Objectives :: Business Finance Investment

Different Types of Mutual Funds and Their Investment Objectives Mutual funds are an investment vehicle which pools the money of many investors. The fund's manager uses the money collected to purchase securities such as stocks and bonds. The types of mutual funds vary according to the fund's investment objective. A fund's investment objective will usually seek capital gains, income, or a combination of both. The basic types of funds are described below. The first types of mutual fund I will discuss are â€Å"Money Market Funds.† Money market funds seek safety of the principal by investing in high quality, short-term securities. This type of fund is designed so that the investor's principal should not decrease in value. However, there is no guarantee that this will always be the case. A money market fund seeks to provide a regular distribution of income which is determined by short-term interest rates. The second types of mutual funds are â€Å"Bond Funds.† Bond funds carry more risk than money market funds and are often used to produce income (retirement) or to help stabilize a portfolio (diversification). The primary types of bond funds are: municipal bond funds (issued by state and local governments), corporate bond funds (debt obligations of U.S. corporations), mortgage-backed securities funds (securities representing residential mortgages), and U.S. Government bond funds (U.S. treasury or government securities).