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A security that gives small investors access to a well-diversified portfolio of shares, bonds, and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed.
Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds:
Index Fund
Index funds invest in securities to mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The fund's performance tracks the underlying index's performance. Turnover of securities in an index fund's portfolio is minimal. As a result, an index fund generally has lower management costs than other types of funds. On a side note, these tend to have lower investment returns than other types, but offer the benefit of being (potentially) well diversified (if you happen to consider this a good thing).
Growth Fund
A growth fund invests in the stocks of companies that are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income.
Value Fund
This is a fund that invests in "value" stocks. Companies rated as value stocks usually are older, established businesses that pay dividends.
Sector (Specialized) Fund
A Fund that tracks one area of industry, is called a Sector Fund. Most sector funds have a minimum of 25% of their assets invested in its specialty. These funds offer high appreciation potential, but may also pose higher risks to the investor. Examples include gold funds (gold mining stock), technology funds, and utility funds.
Income Fund
An income fund stresses current income over growth. The funds objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility stocks, blue-chip stocks, and preferred stocks.
Option income funds invest in securities on which options may by written and earn premium income from writing options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.
Balanced Fund
Balanced Funds invest in stocks for appreciation and bonds for income. The goal is to provide a regular income payment to the fund holder, while increasing its principal.
Asset Allocation Fund
These funds split investments between growth stocks, income stocks/bonds, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance of that group. Example: A fund may have 60% invested in stocks, 20% in bonds, and 20% in cash or money market. If the stock market is expected to do well, that could switch to 80% stocks, and 10% each in both bond and cash investments. Conversely, if the stock market is expected to perform poorly, the fund would decrease its stock holdings.
Hedge Funds
These funds use aggressive strategies to generate income. This includes short selling, the purchase and sale of options or integrated option strategies or structured notes, and the trading of futures. In the view of benefiting from event-driven analysis, the manager of these funds create a combination of investment and derivative strategy aiming at arbitrage profit.
MNI - Market Neutral Investments through Securities Hedging: TA- Timing arbitrage from market benefits O Opportunity Multi Strategy: 2SDM Short Selling in downward market Event-driven strategy through Special market conditions Value and Emerging Markets Fund portfolio of Funds indexed Income Macro Market Neutral - Arbitrage
Small Cap
Small Cap companies are companies with less than $5 billion in capitalization.
Mid Cap
Mid Cap companies have between $5 and $10 billion dollars of capitalization.
Large Cap
Large Cap businesses are those that have more than $10 billion dollars in capitalization.
