This is a guide to different types of mutual funds. When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether investment strategy and risks of fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance - either on your own or with help of a financial professional. Once you know what you're saving for, when you'll need money, and how much risk you can tolerate, you can more easily narrow your choices.
Most mutual funds fall into one of three main categories - money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, higher potential return, higher risk of loss.
Money Market Funds:
Money market funds have relatively low risks, compared to other mutual funds. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect short-term interest rates, and historically returns for money market funds have been lower than for either bond or stock funds.