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Types of Mutual Funds
This section
describes the characteristics, such as investment objective and potential for
volatility, of various categories of funds. The descriptions are organized by
the securities purchased by each fund: stocks, bonds, money market securities,
or a combination of these.
Because mutual funds have specific investment objectives such as growth of
capital, safety of principal, current income or tax-exempt income, you can
select one fund or any number of different funds to help you meet your specific
goals. In general, mutual funds fall into these categories:
-
Stock or Equity Funds invest in shares of common stocks.
-
Bond or Fixed-Income Funds invest in government or corporate
securities to generate income.
-
Asset Allocation Funds invest in a combination of
stocks, bonds and money market securities. -
Money Market Funds for high stability of principal,
liquidity and income.
| Growth Funds |
| What they invest in: |
Generally invest in stocks for growth rather than current income. |
| Suitable
for: |
Growth-oriented
investors who are able to assume risk or who are dependent on maximizing current
income from their investments. |
| Value
Funds |
| What they invest in: |
Generally invest in fundamentally strong businesses whose stocks
appear to be selling at attractive prices. |
| Suitable
for: |
Investors who seek the possibility of long-term capital appreciation
with varying levels of dividend income. |
| Blend
Funds |
| What they invest in: |
Both growth stocks and value stocks. |
| Suitable
for: |
Investors who want the potential to build wealth over time while
seeking investments that perform well when either growth or value stocks
are in favor. |
| International Funds |
| What they invest in: |
Securities of international markets. |
| Suitable
for: |
While international funds offer
opportunities for growth and diversification, these funds do
carry some additional risks over domestic funds and should be carefully
evaluated and selected according to the investor's objectives, timeframe
and risk. They are not suitable for investors whose goal is to conserve
their principal or maximize current income. |
| Specialty/Sector
Funds |
| What they invest in: |
Securities of a specific industry or sector of the economy such as
health care, technology, leisure, utilities or precious metals. |
| Suitable
for: |
Investors seeking to invest in a particular industry. They are not
suitable for investors whose goal is to conserve their principal or
maximize current income. |
| Bond or Fixed-Income Funds |
| Taxable Bond Funds |
| What they invest in: |
U.S. government and government agency bonds, mortgage-backed and
asset-backed bonds or bonds issued by corporations. |
| Suitable
for: |
Investors who want to maximize current income and who can assume a
degree of capital risk in order to do so. When interest rates rise, the
market price of bonds decline and so will the value of the funds'
investments. |
| Tax-Free
Bond Funds |
| What they invest in: |
Bonds issued by state and local governments and other entities to
raise monies for public works and improvements. |
| Suitable
for: |
Investors seeking income dividends that are free from federal taxes
and, in some cases, state and local taxes. When interest rates rise, the
market price of bonds declines and so will the value of the funds'
investments. |
| |
| What they invest in: |
A variable mix of stocks, bonds and money market securities. Some use
a "fund-of-funds" structure and invest in other mutual funds
rather than individual securities. |
| Suitable
for: |
Investors seeking the advantage of investing in a single portfolio with broad
diversification. |
| |
| What they invest in: |
Taxable money market funds invest in high-quality,
short-term U.S. government securities and corporate money market
securities. Tax-free money market funds invest in high-quality, short-term
securities that are exempt from federal taxes and, in some cases, state
and local taxes.
|
| Suitable
for: |
Money market funds are suitable for conservative investors who want high stability
of principal and moderate current income with immediate liquidity.
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