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Saturday, 12 November 2011

Types of Mutual Funds

Most funds have a particular strategy . It is important to find which strategy fits to your investment criteria and style.
Mutual funds are divided in the base of structure and Investment objective.
In the base of structure mutual funds are divided in to three types.
1.Open-ended Funds
2.Close-ended Funds
3. Interval Funds
Open-ended funds do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value(NAV) related prices. The key feature of open end funds is liquidity. 

Close-ended funds have fixed number of shares. The value of the shares fluctuates with the market, but fund manager has less influence because the price of the underlining owned securities has greater influence.

Interval funds are that funds which combines the features of open ended and close ended funds.The units may be traded on the Stock Exchanges or may be open for sale or redemption during pre-determined intervals at Net Asset Value(NAV) related prices.

In the base of Investment Objective Mutual Funds divided in to 16 types.
1.Based on company size large,mid and small capitals: Stocks from firms with various asset levels such as over $2billion for large. In between $2 and $1billion for mid and below $1billion for small.
2. Index Funds: These funds are Position Philosophy based funds. The securities are maintained by the fund manager to mimic the index fund which it is following.
3.Enhanced Index: This is an Index fund which has been modified by either adding value or reducing volatility through selective stock picking
4. Value Stock Funds: Stocks from firm with relative low price to Earning (P/E ratio),usually pay good dividends. It is good for the investor who is looking for the income rather than capital gains. 
5. Income stock funds: Investor who is looking for income can prefer these funds. Income usually come from dividends or interest. These stocks are from firms which pay relatively high dividends. This fund is much like the Value Stock fund but accepts a little more risk and is not limited to stocks.
6. Growth stock funds: Stocks from firm with higher low price to earning(P/E ratio). usually pay small dividends. This is good for the investor who is looking for capital gains.
7.Tax efficient funds: The main key to this fund is to minimize the tax bills such as keeping turnover levels low. These funds still shoot for solid returns.
8. Balanced Funds: These funds are good for the investor who is wishing to balance his risk between various sectors such as asset size ,income or growth. 
9.International funds: Stocks from International firms.
10.Stock Market Sector funds: The securities in this fund are chosen from a particular marked sector.
11.Defensive Stocks: The securities in this funds are chosen from a stock which is usually not impacted by economic down terms.
12.Convertible Funds: Bonds of preferred stocks which may be converted into common stock.
13. Junk bond funds: Bonds which pay higher than market interest but carry higher risk for failure and are rated below AAA.
14. Mutual Funds of Mutual Funds: This funds that specializes in buying shares in other Mutual Funds rather than individual securities.
15.Exchange Traded Funds(ETFs): Baskets of securities that track highly recognized Indexes similar to mutual funds. Except that they trade the same way that a stock trades on a stock exchange.
16.Gilt Funds: These funds are to invest their corpus in securities issued by government
Risk return matrix: The following graph clearly showing the returns and the risk.Its up to you to decide which funds suits for your financial goals and how much risk you can take.

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