If you're confused by the many different kinds of mutual funds out there, such as "growth and income," "equity income," and "fixed income," 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 means that the fund is roughly 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 biotechnology stocks such as Amgen
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 companies or large caps.
"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 -- 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. You may also be interested in our Motley Fool Champion Funds newsletter service, which focuses on top-notch mutual funds.
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