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Types of Mutual Funds

Selecting the right mutual fund that will match your financial needs is not an easy task due to the myriads of types. The basic types are:

  1. Bond Funds

    The major course of application of the bond funds is assistance in the stabilization of a portfolio through diversification or the making of income, which is especially useful in retirement.

    • Mortgage-Backed Securities Funds - residential mortgage securities
    • Municipal Bond Funds - non-taxable funds; the bonds are issued by the state and local governments.
    • U.S. Government Bond Funds - U.S. treasury or government securities used.
    • Corporate Bond Funds - US corporations' debt obligations used.

    Bonds can also be classified as short-term, intermediate-term or long-term, depending on their maturity or the date the money should be paid back by the borrower.

  2. Stock Funds

    This type of fund contains a greater degree of risk than the bond funds. They are mainly used as an instrument for increasing the financial assets you own. Stock funds provide returns more than two percents above inflation levels especially in the long term.

  3. Money Market Funds

    Money Market Funds carry less risk than both Bond and Stock funds, which makes them an extremely suitable point of investment. Additionally, like the bond funds, they offer returns just a percentage or two above the inflation rate. You can use these funds to accumulate money for emergency situations or just to save the money you have acquired from the successful sale of an investment. A typical characteristic of these funds is that they apply short term debt instruments. What makes them better than the banks is that the interest rate they offer doubles the assets the bank can provide in a checking or savings accounts. Money market funds are also better than CDs (Certificates of deposit) since the latter offer lower returns.

    Another advantage that money market funds offer is that you can write checks, the payment on which comes directly from your fund account. What is more, by investing in money market funds, you can cash out quickly, which means that they provide high liquidity. A point worth making is that until now no money market fund has ever gone bankrupt, which cannot be claimed for banks.

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