Types of mutual funds

• Focus on specialized areas, such as real estate, science and technology, healthcare, commodities or socially responsible investing
• A socially responsible fund may invest in the stocks and bonds of companies that support environmental stewardship, human rights and diversity, and may avoid companies involved in alcohol, tobacco, gambling, weapons and the military

• Track the performance of specific market indices, such as the S&P 500
• Are passively managed, which means the portfolio manager will match the holdings of the mutual fund with the holdings of the index
• Charge fees that are generally lower than funds that are actively managed because the portfolio manager doesn’t have to do as much research or make as many investment decisions

• Buy investments that pay a fixed rate of return; for example, government bonds, investment-grade corporate bonds and high-yield corporate bonds
• Typically aim to outpace inflation and create a steady stream of dependable income, mostly through interest the fund earns
• Are generally considered safer than mutual funds that invest in stocks, but they have a lower growth potential and they can still go down in value
• High-yield corporate bond funds are generally riskier than funds that hold government and investment-grade bonds

• Invest in a mix of fixed income securities and equities
• Follow an investment objective to determine how much they can invest in different kinds of securities; for example, a conservative balanced fund may invest 80% in bonds and 20% in stocks, while an aggressive fund will hold more equities and fewer bonds
• Generally aim to get better returns than fixed income funds without taking on as much risk as equity funds

• Invest in short-term fixed income securities, such as government bonds, T-bills, bankers’ acceptances, commercial paper and certificates of deposit
• Are generally considered one of the safest types of investments, but low risk often means returns are also typically lower

• A fund of funds is like an umbrella and underneath is one or more individual funds that have been carefully selected to meet a certain investment objective by the fund of funds manager
• Don’t buy individual stocks and bonds, but rather invest in one or more funds that have these assets
• Have two advantages:

You get enhanced diversification because a fund of funds can hold several funds within it 
You benefit from the diversification of the investment management teams' expertise

• Typically have a higher fee structure than standalone mutual funds