Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund management pattern. An open-end fund offers to sell its shares (units) continuously to investors either in retail or in bulk without a limit on the number as opposed to a closed-end fund. Closed end funds have limited number of shares. Let us look at the type of mutual funds that are there in the market. Pure Equity funds-which invest over 70% in equities, Sector dedicated funds-which invest in equities of a particular sector, Balanced Fund-These funds use a mix of stocks, bonds, and money markets to try to generate moderate growth and income while carrying moderate risk. Bond Funds-Invests in Government, Treasury, and Municipal bonds to provide revenue and reduce market risk. Index Funds- Strives to post returns comparable to benchmark index for investment category. Risk varies with asset class. Money Market Funds- Invests in high-quality bonds, commercial paper, and bank notes. Seeks to maintain a stable share price and generate income. Carries a low market risk but lower returns are highly susceptible to inflation risk. Value Funds-Seeks to maintain principal and generate modest income by investing in out of favor or undervalued securities. Low annual returns may not outpace inflation.
Investing in Mutual Funds offers several benefits: