Investing in mutual funds can accumulate your wealth in the long term. And because of their greater returns and moderate risk, it appeals to many new investors. But to get high returns at low risk, you should probably know the types of mutual funds before investing in them.
What is Mutual Fund & Why Should You Consider Investing in Them?
Mutual funds are investments that allow you to own a portfolio of bonds, stocks, and other securities. For instance, when you buy a share of a mutual fund of any company, you own a fraction of all the assets in that company fund.
Most investors like to invest in mutual funds because they are cost-effective and diversified.
What Are Some Types of Mutual Funds You Should Know Before Investing?
To invest wisely, you should probably know what you’re investing in. Here are the 6 types of mutual funds you probably need to know!
1. Growth Funds
Growth funds mainly invest in stocks of companies that have the potential for above-average returns. These funds can rise higher in a bull market but can also fall rapidly in a bear market.
Growth funds are best suited for people with higher risk tolerance.
2. Income Funds
Income funds generally invest in bonds and stocks that pay dividends to the investors continually, regardless of the actual performance of the fund.
The returns are lower than growth funds for these types of funds because their main objective is not to produce a higher price. Also, Income funds are not as volatile as growth funds.
3. Money Market Funds
Money market funds hold short-term securities issued by the government or by large corporations, such as U.S. Treasury bills.
The annual return for money markets funds is low because the risk involved is also low.
4. Indexed Funds
Index funds are types of mutual funds with a portfolio created to replicate the components of a financial market index, such as the S&P 500 index.
These funds are considered ideal for retirement people, such as individual retirement accounts and 401k accounts.
5. Hedge Funds
A hedge fund is managed by professional managers who use a wide range of strategies including trading non-traditional assets or leveraging to earn above-average returns for the private investor.
Hedge funds are often considered a risky investment option and usually require a high minimum investment.
