Mutual funds are investment funds that are run by a professional portfolio manager. The portfolio manager uses their knowledge and experience to decide what the best investments are for their mutual fund.
There are many types of mutual funds which can invest in different combinations of investments depending on the type of the fund. All mutual funds will hold at least a small amount of cash in addition to their regular investments.
Here are some general types of mutual funds and the types of investments you might find in them:
- Equity funds – These usually hold stocks of companies, possibly exchange traded funds (ETFs) and options in some cases. An example of an equity fund is Franklin Growth Fund.
- Bond Funds – These hold fixed income investments such as bonds and preferred shares. An example of a bond fund would be Vanguard Total Bond Market Index.
- Balanced funds – these are a combination of equity and bond funds. These funds can hold any type of investment that an equity fund and bond fund can hold. An example of a balanced fund would be American Balanced Fund.
- Target Retirement Funds – Similar to balanced funds but are geared towards a particular retirement date.
Keep in mind that index funds are also mutual funds, they are just a particular type of mutual fund.
There are also more specific types of funds available concentrating on a particular industry or geographic region. For example a country-specific fund will only invest in companies from a particular country. Franklin India Fund is a country-specific fund that only invests in Indian based companies.
An industry fund would be a fund that only invests in one industry such as oil. An oil based mutual fund might invest in oil producers, refineries, gas stations etc.