Mutual funds can be an excellent investment vehicle and should be considered as part of your portfolio whether you are a beginner or a seasoned veteran. There are numerous types of mutual funds so it is essential that you learn them if you want to succeed as an investor. Some of the most common types of mutual funds are the money market funds, income funds, balanced funds and global funds. Learning about these different types is essential to helping you find the best mutual funds available.

Money Market Funds

Money market funds are generally classified as having lower risk due to their investments in Treasury bills. In fact, money market funds are only able to invest in short-term investments that are of high quality like government bonds and treasury bills. While you’re not likely to get a significant return on your investment, money market funds are generally a safe and low risk investment. You can typically expect to get twice the rate in a regular savings account, but less than the average certificate of deposit (CD).

Bond/Income Funds

The primary of these types of mutual funds are to provide income on a steady basis to investors. These funds typically have higher risk than money market funds simply because they tend to seek out riskier investments but with higher returns. These funds primarily invest in government and corporate debt with the aim of providing steady cashflow to investors.

However, bond funds do not come without risks. These funds are subject to interest rate risks which means that when interest rates go up, the value of the bonds go down. In addition, there is a possibility of prepayments risks when the bond issuer decides to pay off their debt in order to issue new bonds.

Balanced Funds

As the name suggests, these types of mutual funds consist of different types of investments like stocks, bonds and other equities. The objective for these funds is to diversify risk while combining different investment vehicles in order to provide return on investments for investors. This gives an opportunity for investors to receive income and capital appreciation. A typical balanced fund will consist of 60% equity and 40% fixed income assets.

Global Funds

Global funds have investments in countries outside of your home country. While it is tough to classify these funds as either riskier or safer than domestic investments, they do tend to be extremely volatile and may also have political considerations. These types of mutual funds are excellent investments if you want to invest in a country you know that has high potential economic growth rate.

Before investing in any types of mutual funds, it’s important that you do thorough research into the different fund types and the benefits and risks of each. In addition, each fund also has different risk implications but depending on what risk level you are comfortable you are sure to find a mutual fund that’s right for you.