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Overview: Investment Types Continued Beyond the Basics - Mutual Funds Mutual funds are a collection of stocks and bonds or both, depending on the fund’s stated objective. Before investing in a mutual fund, you should understand what the underlying securities are. You can find this information in a fund’s prospectus (it is required by law that a prospectus be delivered to you prior to investing in the fund). There are thousands of mutual funds from which to choose. Several mutual fund categories are listed below (these are general categories and not specific funds). MONEY MARKET FUNDS - Money market funds invest in money market securities. Keep in mind that an investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. While the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money while investing in the fund. BOND FUNDS - Bond funds include (but are not limited to) U.S. government treasury funds, municipal bond funds and corporate bond funds. STOCK FUNDS - Stock funds include (but are not limited to) large-cap growth funds, large-cap value funds, mid-cap growth funds, mid-cap value funds, small-cap growth funds and small-cap value funds. BALANCED FUNDS - Balanced funds usually contain a mix of stocks, bonds, and cash or cash equivalents. SECTOR FUNDS - Sector funds invest in just one sector of the economy such as a technology or healthcare. Higher potential return associated with investing in sector funds generally involves greater risk, and short-term volatility is not uncommon when investing in a sector fund. Common mutual fund fees - Mutual funds can carry a variety of fees. These fees are regulated by federal law and should be considered when selecting and investing in a fund. Load refers to a fee that the investment company charges the investor. Loads can range from 1% to 6%, depending on whether they are charged up front or at the back end. Annual management fees, which range anywhere from 1% to 3% per year, are based on the assets under management. All funds carry an internal annual management fee, and there may be an additional management fee depending on the structure of the investment. Marketing fees, or trailers, vary by type, but the most common marketing fee is the 12(b)1 fee. Usually, these fees are assessed annually and for some share classes, they may be higher during the first five to seven years you're in an investment. Let's move on to Investment Strategies. < BACK NEXT > #40131