A mutual fund is defined by Dustin Woodard as a financial “intermediary” that permits a group of investors to pool money together with a “predetermined investing objective.” The fund has what is known as a “fund manager” who invests the money into securities such as stocks and bonds. An investor buy shares in the mutual fund, becoming a shareholder of the fund.

Types of Mutual Funds

There are several types of mutual funds out there and divisions of course within the major types. Ameritrade states that the major types of mutual funds are determined by the investment objectives of each. These include growth funds, income funds, balanced funds, or subclasses of these.

Growth funds are defined as a type of stock fund that is selected to appreciate with time. These funds are typically invested in stocks that show much potential for growth. Within the growth funds there is also a group known as aggressive growth funds.

Income funds are designed to pay regular income dividends to the investors. These funds are typically invested in “preferred stocks and bonds” to ensure a stable current income.

Finally, there are balanced funds. These invest in common stock, preferred stock, bonds and cash or cash equivalents to provide a combination of growth and current income. The goal is to flatten out the risks and maintain a strong portfolio.

Again, there are many other types of mutual funds within these divisions. There are bond funds, money market funds, index funds and many other types of mutual funds that are specialized and specific to markets.

Why Choose a Mutual Fund?

Dustin Woodard claims that mutual funds are the best investment that investors can make. He says that mutual funds are cost efficient to the investor and are an easy way to invest. They are easy, according to Woodard, because you do not have to pick and choose among stocks or bonds. Pooling money together also allows investors to buy stocks and or bonds with lower trading costs.