Kinds of Funds

If you're confused by the many different kinds of mutual funds out there, such as growth and income, equity income, and fixed income, then you're not alone.

First, there are a few key words to understand. "Fixed income" means bonds. "Equity" means stocks. "Income" funds aim to generate regular payoffs for shareholders through dividends from stocks and/or bond interest. "Growth" funds don't try to generate income. Instead, they tend to seek stock price appreciation. Sometimes you may see the term "balanced" used, which generally means that the fund is about half stocks and half bonds. There are many variations of these kinds of funds.

There are also other kinds of funds, such as industry-specific sector funds. One sector fund might focus on just biotechnology stocks such as Amgen (Nasdaq: AMGN  ) . Another sector fund might concentrate on computer-related firms such as Dell (Nasdaq: DELL  ) , while a third one invests solely in banking stocks such as Wells Fargo (NYSE: WFC  ) .

Some mutual funds focus on particular regions. One might invest in Indian companies, another might specialize in Russian companies, and a third might limit itself to Latin American enterprises.

Other funds restrict themselves to certain sizes of companies, such as the universe of small-cap or large-cap companies.

"Index funds" mimic indexes. An S&P 500 index fund, for example, will contain stocks in the 500 companies that make up the S&P 500 index -- in the same proportion as the index. These are passively managed funds, as opposed to actively managed ones, because there's no manager subjectively evaluating and selecting stocks. Instead, it's just a matter of making sure that at all times the fund contains the appropriate stocks in the appropriate proportions.

Learn more about investing in mutual funds in our Mutual Fund area, and zero in on our index fund information there. Find additional info about funds and stocks in our Investing Basics area.

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