Types of Mutual Funds

By Cheryl Sperling

In the US, there are 10,000 kinds of mutual funds and here in the Philippines there are only fewer than a 100. But Mutual Funds can be classified into 4 types as follows: Bond Fund, Stock Fund, Money Market Fund, and Balanced Fund. They are so named in accordance to where the Mutual Fund is invested in.

                                                           Courtesy of IMG

How then will we choose which kind of mutual fund we will invest in? The answer is based on your investment risk appetite and/or your
investment goals. Are you the aggressive type of investor? The gambler type, win big or nothing-at-all type? Are you the conservative or moderate type who just wants a regular interest for your money? Or do you just want to preserve your capital against inflation and taxes? Or you want to make your money grow in the short to medium term only to provide for a short term goal? Your answer will help you decide on what type of mutual fund to put your money in.

From the chart, you will notice that the earnings is dependent on the type of Mutual Fund. The Stock Fund, which is invested 100% in shares of stocks or also called Equity Fund, having the highest rate of return or earnings; followed by the the Balanced Fund, which is invested half on equities or stocks and half on fixed incomes like bonds, has a bit less earnings than the Stock Fund; then the Bond Fund, as the name connotes is invested whole in bonds; and lastly comes the Money Market Fund, whose earnings will not be enough to combat the effects of inflation and taxes. This is explained better on the next graph, as follows: 

 

 

                                                                                Courtesy of IMG

The higher the Risk, the higher the reward! Equity Funds gives the highest returns or rewards because it is so risky. The volatility of the stock market is so unpredictable although, there are some factors that could account for it, like the political situation for one. That's why there are technical analyst in the stock market to help us in case we do trade directly on the stock market. 

In a mutual fund, the value of ones share goes up and down as the value of stocks or bonds rise and fall. So as to be protected by this fluctuations, it is recommended that we invest in Mutual Funds for the long term so that we can ride the tide, so to speak. So while one is younger, one can opt to be more aggressive as the time before retirement is still a long way. Happy investing!!