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Mutual
Funds
 A
mutual fund allows people with common financial goals to pool
their resources together in one professionally managed investment
that holds many different securities.
What does a mutual fund invest in?
Mutual funds typically invest in securities such as stocks,
bonds, money market instruments or other specialized types
of investments.
What types of Mutual Funds are there?
The many different types of mutual funds makes it hard to
tell them apart. A good place to start is the fund's objective.
Most mutual funds pursue either growth of capital, value or
income - or some combination of objectives. To maintain a
diversified and balanced portfolio, you'll want to invest
in a variety of funds, each with a different objective.
What is a growth fund?
A growth fund typically invests in stocks of companies with
the greatest potential for long-term growth. These could include
companies in fast growing industries, such as technology and
healthcare, or well-established companies. While growth funds
are subject to the daily ups and downs of the stock market,
there is the potential for growth over the long-term.
What is an aggressive growth fund?
Aggressive growth funds generally have investment policies
and strategies that pursue maximum growth. They may invest
in smaller companies that have the potential to grow much
larger over time. Or they may focus on investments in emerging
markets, like Asia and Eastern Europe. Aggressive growth funds
can be very risky and are not suitable for all investors.
However, a well-diversified mutual fund portfolio can help
reduce some of this risk.
What is a value fund?
In contrast to a growth fund, a value fund focuses on companies
that are temporary out-of-favor with the market - so their
stock may be selling for less than their estimated worth.
Usually, these are well-established companies that investors
have overlooked, companies experiencing a positive change
or event, or companies in cyclical business. Although these
companies generally have lower than average price-to-earnings
ratios, they have the potential for better-than-expected earnings
should they return to favor.
Growth vs. Value
Historically speaking, growth and value investments tend
to react differently during the economic cycle. Since value
stocks are often cyclical in nature, they may benefit from
the increased spending that usually occurs during an economic
expansion. Growth stocks may also perform well during an expansion,
but they usually prosper during a slowdown of the overall
economy. So both types of investments play an important role
in a long-term portfolio.
What is an income fund?
Income funds invest primarily in bonds or other income-producing
securities, such as stocks that pay dividends. They may seek
current income over time - which may be paid out on a monthly,
quarterly or semiannual basis. This type of fund may be more
stable in share price than a growth or value fund. Depending
on the securities an income fund invests in, the income can
be either taxable or tax-exempt.
What is a taxable income fund?
Taxable income funds invest primarily in corporate bonds
or dividend-paying stocks. The income they produce is usually
subject to federal and state income taxes.
What's the difference between taxable and tax-exempt yield?
The interest rates offered by tax-exempt bonds are usually
less than the rates on taxable bonds. That's because you generally
get to keep more of the income on a tax-exempt bond. The difference
between the two depends on your tax bracket: The higher your
tax bracket, the more desirable tax-exempt income becomes.
However, some tax-exempt income may be subject to taxes. If
you are subject to the alternative minimum tax, tax-exempt
income may increase that tax. Also, capital gains distributions
from a tax-exempt fund are subject to capital gains taxes.
What is a tax-exempt income fund?
A tax-exempt income fund invests in municipal securities
issued by state and local governments, subdivisions and authorities.
The interest from these securities is generally exempt from
federal income taxes and state and local income taxes - depending
upon the state in which they are issued and where you reside.
Also, as mentioned above, the income may be subject to the
alternative minimum tax.
What is a growth and income fund?
Growth and income funds typically invest in a mix of stocks
for growth, along with bonds or other dividend-paying securities
for income. The income may help to soften the impact of the
short-term ups and downs of stocks on the overall value of
your investment.
What are international funds?
International funds invest primarily in securities issued
outside the U.S. Over the past 25 years, the percentage of
the world's capital represented by foreign securities has
risen dramatically. International funds involve special risks,
including political and economic uncertainties and currency
rate fluctuations. However, funds that hold foreign securities
are generally a sensible part of a long-term investment portfolio,
as they add diversification.
What is a global fund?
A global fund can invest overseas as well as in the United
States. As a result, global funds may offer more diversification
than international funds, which can help to reduce the risks
typically associated with investing in foreign securities.
What are specialty funds?
Specialty funds may invest in narrowly focused categories,
such as precious metals or a single industry or industry group.
Because of this concentration, these funds may be subject
to greater risk than a fund that diversifies across many industries.
However, as a part of a diversified portfolio, a specialty
fund may help offset other market risks whereby offering the
possibility of positive long-term results.
Mutual Funds are sold by prospectus; always read the prospectus
carefully as it contains more complete information, including
risk, fees and expenses.
| Investment Strategies / Asset Allocation | Mutual Funds |
| Variable Annuity | College Funding | Financial Tips | Newsletters |
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