Investment Fund Types

One of the biggest appeals about investment funds is that investors can purchase proportionate amounts of specific asset classes. This becomes increasingly important as investors gain knowledge and start to appreciate the inherent value of diversification. This brief article looks at the different types of basic investment funds.

Cash Equivalent

This type of investment will suit investors whose main investment objective is to ensure that their investment is returned to them in the same shape as when they made that investment. In previous years, some cash equivalent funds paid a bit of interest (Money Market funds as well as T-Bonds).

Fixed Income Funds

Investing in fixed income is primarily for the income they pay. This would be the equivalent of putting money in a locked in term deposit or a bond. The reason people invest here is to generate income, normally in the form of interest payments. While some values could fluctuate, they are normally less volatile than equities.

Equity

People invest in equities in order to see their investments grow. A $1,000 today will hopefully be worth $2,000 seven years from now. The primary objective is growth, but some equities pay dividends which can also provide a bit of income into this type of fund.

Balanced

A balanced fund is a hybrid of the three asset types above, but mostly a balance between fixed income investments and equity investments. The balance will depend on several factors, like whether the fund is actively managed (tactical) or based on a specific asset mix (strategic). A balanced fund provides some growth and some income, hence the term balanced.

Index

Index funds are investments that track a specific index or several different indexes. There is no leverage in terms of security selection. The reason investors might choose index funds as opposed to straight equity or fixed income funds has to do with reducing investment manager risk (the risk that the manager will make the wrong "call" on a large block of assets that end up losing the fund or investor a lot of money).

Specialty Funds

Specialty funds are a fairly specific breed of funds that choose a specific niche or market sector and invest in them. Specialty can mean just about anything, such as "emerging markets," "High Yield bonds," or even "real estate" funds. They are generally higher risk and are only a small, managed portion of one's portfolio.

Every investment fund on the market can be categorized as one of the above. But within each of these categories are further sub-categories that define how the fund is to be managed and how it will be invested.

Want to learn more about the different Types of Mutual Funds? Visit the Mutual Fund Site for more information.

Chris has more than 17 years of financial services experience. As a write for the Mutual Fund Site, he often writes about Equity Funds and different types of specialty funds. Read more of his material at MutualFundSite.org.