Categories or types of investment funds
Brokerage services may suggest various types of investment funds. Below you will find some general explanations as to the nature of some of the major types of investment funds or investment types.
- Bond funds
- Bond funds invest in corporate, municipal or government debt obligations of different maturities and interest rates.
- Taxable bond funds generally invest in the debt obligations issued by the U.S. Treasury, other U.S. government agencies and U.S. corporations.
- Tax-exempt bond funds primarily invest in municipal bonds generally issued by state and local governments to fund general expenditures and public projects. Investment income may be subject to certain state and local income taxes and a portion of the income may be subject to the alternative minimum tax.
- Capitalization-based funds
- Large-cap U.S. stock funds invest primarily in stocks that fall in the top 70% of the U.S. market capitalization.
- Mid-cap U.S. stock funds invest primarily in stocks that fall in the next 20% of the U.S. market capitalization range following larg-cap stocks.
- Small-cap U.S. stock funds generally invest in stocks falling in teh bottom 10% of the range.
- International stock funds
- Foreign stock funds typically have less than 20% of their assets invested in the United States.
- World stock funds invest primarily in equity securities of issues located throughout the world and generally invest at least 20% of assets in the United States.
- Regional funds generally hold high concentrations of securities from one specific geographic region.
- Emerging market funds generally invest in securities from less developed countries.
- Other types of funds
- Balanced funds invest in a mix of stocks, bonds and cash. In general, there are two categories of Balanced funds - Conservative allocation (generally invests 20% to 50% of assets in equities and 50% to 80% of assets in fixed income and cash) and Moderate allocation (generally invests 50% to 70% of assets in equities and 30% to 50% of assets in fixed income and cash).
- Blend funds invest in a combination of value and growth stocks.
- Convertible funds invest primarily in bonds and preferred stocks that can be converted into common stocks.
- Exchange traded funds or ETFs generally hold securities in a particular index, such as the S&P 500.
- Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity.
- Sector funds concentrate investments in firms that fall into specific industries that produce related products or services.
- Target maturity or Lifecycle funds are managed for investors planning to retire (or begin withdrawing substantial portions of their investments) in a particular year. These funds provide both asset allocation and rebalancing for investors following an investment strategy that grows more conservative as the target date approaches.
- Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to “turnaround”.
