Mutual Funds

What are the different kinds of mutual funds?

Stock, bond and money market mutual funds can be categorized in numerous ways. For money market funds, go to "Money Markets."

Some of the most widely used categories for stock and bonds funds are listed here.

STOCK (EQUITY) FUNDS
By strategy:

Growth funds — invest in stocks of fast-growing companies to seek capital appreciation. Among the riskiest stock funds, with the greatest potential for higher returns.
Value funds — invest in large and mid-size companies whose stock prices are depressed because the companies are overlooked or out of favor. Because the stock price is depressed, it can be bought at a “value.” These companies tend to pay dividends.
Blend funds — invest in a blend of both growth and value stocks for attractive returns with lower risk.
Life stage funds / Lifecycle funds — funds with varying risk/return profiles based on an investor’s age and circumstances.
Growth and income funds — invest in companies that offer earnings growth potential and that pay dividends. More

Equity income funds — invest in higher-dividend-paying stocks.
Balanced funds — buy both stocks and bonds to provide both capital appreciation and income while reducing risk.
Asset allocation funds — funds that invest in all three asset classes — stocks, bonds and money markets — all at once.

By market capitalization (the number of shares outstanding multiplied by the current market price):

Large cap funds — invest in well established, “blue chip” companies with large market value. These companies are generally considered to have less risk and reward potential than smaller companies because they are mature businesses whose future growth will be slower than smaller firms. They tend to pay dividends.
Mid cap funds — invest in mid size companies with mid-range risk and return characteristics. These companies tend to be more established and have longer track records than smaller companies, so they are generally considered to be less risky investments. Yet they retain some of the characteristics and higher growth potential of smaller companies. For example, they may be more nimble than large companies and better able to respond faster to opportunities as they arise.
Small cap funds — invest in smaller, sometimes emerging companies that have significant growth potential as well as significant risk. That’s because it’s easier for small companies to experience rapid, explosive growth … or rapid failure. These companies generally do not pay dividends, but reinvest their earnings to grow the company.

By investment area:

Global funds — invest in both U.S. and international stocks.
Foreign funds — invest primarily outside the U.S.
Country specific funds — focus on one country or region.
Emerging market funds — focus on developing countries or industries; generally high risk investments.

Sector funds — invest primarily in a particular industry or segment of the market, such as computers or healthcare or automobiles. Diversified only within a single sector.
Stock index funds — passively managed funds that track the performance of a specific index.

BOND (FIXED INCOME) FUNDS
By types of investments:

Municipal bond funds — invest in tax exempt bonds issued by state and local governments. Income is exempt from federal income tax, and sometimes from state and local taxes.
Corporate bond funds — invest in bonds issued by corporations.
Mortgage backed securities funds — invest in pools of securities representing residential mortgages.
U.S. Government bond funds — invest in U.S. Treasury or government securities. Income from U.S. Treasury funds is exempt from state and local taxes.
High Yield bond funds — invest in poorly rated, non-investment-grade bonds that represent high risk and that pay very high yields.

By maturity (the date the issuer of the bond must redeem the bond)
Issuers use different terminology, but in general the categories are:

Bond index funds — passively managed funds that track the performance of a specific index