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Stock funds can be distinguished by several properties. Funds may have a specific style, for example, value or growth. Funds may invest in solely the securities from one country, or from many countries. Funds may focus on some size of company, that is, Small-cap , Large-cap , ''et cetera''. Funds which are managed by professionals are said to be Actively Managed where as Index funds try as best as possible to mirror specific market indices.
FUND TYPES Index Fund Index funds invest in securities to mirror a market index, such 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 assest ivested 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 campanies with long histories of divident payments, such as utility stocks, blue-chip stocks, and preferred stocks.
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. FUND OF FUNDS This is a relatively new type of fund that invests in hedge funds not normally available to retail investors. (Hedge funds are not available to most investors because of the large investment requirements (typically $1 million or more). HEDGE FUNDS These funds use aggressive strategies to generate income. This includes short selling, the purchase and sale of options, and the trading of futures. 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. |