Learn about the different Types of Mutual Funds in this mutual fund tutorial. Which mutual fund is right for you?
Asset allocation refers to the division of your portfolio to different asset classes such as money-market securities, bonds, stocks and their appropriate subcategories. An asset allocation fund follows this principle by holding several asset categories. One of many Types Of Mutual Funds.
These funds invest in a combination of bonds and stocks of various sorts depending on their stated objectives.
The opposite of open-end funds, closed-end funds place their shares on the exchange so investors can buy or sell like over-the-counter stocks. Because shares can be traded at discount, NAV, or premium, close-end funds introduce an additional dimension of risk and return.
Convertible Bond Funds
A convertible security gives the holder the right to convert one type of security into a stipulated amount of another type at the investor’s discretion. Convertible Bond Funds invest in bonds that can be converted into preferred or common stock. The benefit is that if an issuing company performs well after the issuance of the convertibles, the fund will be able to gain by converting the bonds into the now-more-valuable stock.
Advantages to Issuing Companies on these Types Of Mutual Funds
Lower interest rate on its debt – The fund is, in effect, substituting the certain stream on interest payments for the uncertainty of the growth prospects for the uncertainty of the growth prospects of company that issues the bonds.
They represent potential common stock – This future common stock feature may be desirable for a firm that currently needs equity capital for...
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...stry, such as communications or utilities. The benefit is that investors have higher gains when their sector is performing well. The downside is that sector funds are not diversified and lose value when the sector does poorly. Some sector funds invest in bonds to reduce the risk.
Small Company Funds
These funds invest in bonds and common stock of small companies that have high potential to succeed. The key to reduced risk is diversification among industries.
Total return funds focus on getting the “total-return” on the securities it holds. For bonds this means holding to maturity. With stocks, fund managers use the price/earnings ratio to calculate future appreciation. In options trading, managers focus on dividends, capital gains and premium income.
These are some of the best Types Of Mutual Funds for investors.
Types of Mutual Funds Tutorial
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