Mutual funds are a way for investors to diversify their financial portfolios. Here are the different types of mutual funds. It is far smarter to invest in different fields rather than putting all your eggs in one basket.
Another name for equity funds
The great thing about stocks is its good performance, historically speaking. It is one of the most reliable sources of income, especially if leftover time. The reason is that stocks naturally perform better if you give it time. Investments under this category are done on the assumption that the corporation has nowhere else to go but up. As they build their brand by opening more branches or hiring more people or selling more products, your stock investments also expound. Equity funds are heavily reliant on the company’s economic performance and corporate earnings. You might also want to look at the other factors that might affect the corporation of your choice. Research on their history and stay up to date with their social status. Is there any news that they have discriminative policies or are they currently facing a lawsuit? These things can cause their stock value to plummet and that is a good sign for you to withdraw.
Equity Funds Subclassification
There are also subclassifications under equity funds. Growth funds are great because they offer a huge sum of money based on capital appreciation. The only problem is they may be irregular in payment. Income funds pay regular dividends. Index funds follow specific market indexes as its value, like the S&P 500 Composite Stock Price Index. Sector funds deal with highly specific societal sectors like technology, finance, or even healthcare.
These are also known as bond funds. Your primary investments under this category are corporations or government agencies that are in debt. The purpose is to give out income in dividends. The fixed-income investments are included in the portfolio in order to optimize the financial returns. This is a great tactic to offset the plummeting value of stocks. Bond funds can likewise be classified according to different sectors. There is also a wide range of risks for each type. Low-risk bonds include the treasury bond backed by the United States. High-risk bonds include high-yield ones or some junk bonds. These have a lower credit rating compared to other corporate bonds.
The fixed income category is generally more stable than stock bonds but they do have their own fair share of risks, like the failure of the corporations to pay back the debt or the increase of interest rates which will then lower the value of bonds. There is also a chance that the bond will be paid off earlier than anticipated which eliminates the chance for further investments.