Types of Mutual Funds
Over the years a diverse range of mutual funds has emerged to meet a very broad range of investment objectives among the investing public.
A fund's prime investment goals are stated in the fund's offering prospectus and generally cover the degree of safety or risk that is acceptable, whether income or capital gain is the prime objective, and the main types of securities in the fund's investment portfolio. From their differing investment objectives, the following main types of funds emerge:
1. Bond Funds - whose main investment goals are income and safety of principal. Investment by such funds is primarily in good quality, high yielding government and corporate debt securities, some high-yield preferred and common shares and mortgages. Their degree of volatility
is related to the degree of interest rate fluctuation.
Example: Altimira Bond Fund.
2. Mortgage Funds - investment goals are similar to those of bond funds, and unit values are affected by similar economic factors. Investors hold a share in a group of mortgages (much as bond fund investors hold a share in a group of bonds) rather than holding title to a particular
property.
Example: Royfund Mortgage Fund.
3. Money Market Funds - became very popular with investors during the 1980s and are now the largest category of mutual fund. The objective of this type of fund is to achieve a high level of income and liquidity through investment in short-term money market instruments such as treasury bills, commercial paper and short-term government bonds. These funds have limited opportunity for capital gain: many funds keep the net asset value at a set level (e.g. $10) by distributing monthly income to unitholders in cash or new units.
Example: Bolton Tremblay Money Fund.
4. Balanced Funds - whose main investment objectives are a mixture of safety, income and capital appreciation. These objectives are sought through a balanced portfolio of fixed income securities for stability and income, plus a broadly diversified group of common stock holdings for diversification, dividend income and growth potential. The balance between defensive and aggressive security holdings is rarely 50-50; rather, managers of balanced funds adjust the percentage of each part of the total portfolio in accordance with current market conditions and future expectations.
Example: Investors Mutual of Canada Ltd.
5. Common Stock or Equity Funds - These funds are primarily invested in common shares. Short-term notes or other fixed income securities may be purchased from time to time in limited amounts for diversification, income and liquidity, but the bulk of assets are in common shares in the pursuit of capital gain. Because common share prices are typically more volatile than other types of securities, prices of equity funds tend to fluctuate more widely than those funds previously mentioned. Some equity funds invest in a variety of overseas markets as well as Canada and the United States. These funds invest in markets perceived to offer the greatest opportunity for
growth on a global basis.
As with common stocks, equity funds range greatly in degree of risk and growth potential. Some are broadly diversified, heavily invested in blue-chip, income-yielding common shares and may, therefore, be classified at the conservative end of the equity fund scale.
Many common stock funds adopt a slightly more aggressive investment stance as, for example, Industrial Growth Fund which invests principally in securities with an objective of above average growth of capital. Other equity funds are of a more speculative nature, aggressively seeking capital gains at the sacrifice of some safety and income. Example: United Venture Fund Ltd.
6. Specialty Funds - are those which concentrate portfolio holdings on shares of a group of companies in one industry, in one geographic location or in one segment of the capital market. While still offering some diversification in their portfolios, they are more vulnerable to swings in the industry in whose shares they specialize or, if they have a portfolio of foreign securities, in currency values. Many, but not all, tend to be more speculative than most types of common share funds.
Example: AGF Japan Fund Ltd.
7. Global Funds - seek gains and diversification by investing in markets that offer the best prospects, regardless of location. Some global funds are invest in bonds, others are equity funds and still others are money market funds.
Example: Templeton Emerging Markets Fund.
8. Dividend Funds - are those that invest primarily in high quality preferred and sometimes common shares of taxable corporations in order to obtain maximum dividend income.
Example: Allied Dividend Fund.
9. Real Estate Funds - are those which invest in income-producing real property in order to achieve long-term growth through capital appreciation and the reinvestment of income.
Example: Investors Real Property Fund.
10. Ethical Funds - Investment decisions are guided by moral criteria. These criteria vary from fund to fund. One ethical fund may avoid investing in companies that profit from tobacco, alcohol or armaments, while another fund may invest according to certain religious beliefs.
Example: VanCity Investment Services Ltd.'s Ethical Growth Fund.
Read more about trading methods in the financial markets at Envision Investor [http://envisioninvestor.com/].
A fund's prime investment goals are stated in the fund's offering prospectus and generally cover the degree of safety or risk that is acceptable, whether income or capital gain is the prime objective, and the main types of securities in the fund's investment portfolio. From their differing investment objectives, the following main types of funds emerge:
1. Bond Funds - whose main investment goals are income and safety of principal. Investment by such funds is primarily in good quality, high yielding government and corporate debt securities, some high-yield preferred and common shares and mortgages. Their degree of volatility
is related to the degree of interest rate fluctuation.
Example: Altimira Bond Fund.
2. Mortgage Funds - investment goals are similar to those of bond funds, and unit values are affected by similar economic factors. Investors hold a share in a group of mortgages (much as bond fund investors hold a share in a group of bonds) rather than holding title to a particular
property.
Example: Royfund Mortgage Fund.
3. Money Market Funds - became very popular with investors during the 1980s and are now the largest category of mutual fund. The objective of this type of fund is to achieve a high level of income and liquidity through investment in short-term money market instruments such as treasury bills, commercial paper and short-term government bonds. These funds have limited opportunity for capital gain: many funds keep the net asset value at a set level (e.g. $10) by distributing monthly income to unitholders in cash or new units.
Example: Bolton Tremblay Money Fund.
4. Balanced Funds - whose main investment objectives are a mixture of safety, income and capital appreciation. These objectives are sought through a balanced portfolio of fixed income securities for stability and income, plus a broadly diversified group of common stock holdings for diversification, dividend income and growth potential. The balance between defensive and aggressive security holdings is rarely 50-50; rather, managers of balanced funds adjust the percentage of each part of the total portfolio in accordance with current market conditions and future expectations.
Example: Investors Mutual of Canada Ltd.
5. Common Stock or Equity Funds - These funds are primarily invested in common shares. Short-term notes or other fixed income securities may be purchased from time to time in limited amounts for diversification, income and liquidity, but the bulk of assets are in common shares in the pursuit of capital gain. Because common share prices are typically more volatile than other types of securities, prices of equity funds tend to fluctuate more widely than those funds previously mentioned. Some equity funds invest in a variety of overseas markets as well as Canada and the United States. These funds invest in markets perceived to offer the greatest opportunity for
growth on a global basis.
As with common stocks, equity funds range greatly in degree of risk and growth potential. Some are broadly diversified, heavily invested in blue-chip, income-yielding common shares and may, therefore, be classified at the conservative end of the equity fund scale.
Many common stock funds adopt a slightly more aggressive investment stance as, for example, Industrial Growth Fund which invests principally in securities with an objective of above average growth of capital. Other equity funds are of a more speculative nature, aggressively seeking capital gains at the sacrifice of some safety and income. Example: United Venture Fund Ltd.
6. Specialty Funds - are those which concentrate portfolio holdings on shares of a group of companies in one industry, in one geographic location or in one segment of the capital market. While still offering some diversification in their portfolios, they are more vulnerable to swings in the industry in whose shares they specialize or, if they have a portfolio of foreign securities, in currency values. Many, but not all, tend to be more speculative than most types of common share funds.
Example: AGF Japan Fund Ltd.
7. Global Funds - seek gains and diversification by investing in markets that offer the best prospects, regardless of location. Some global funds are invest in bonds, others are equity funds and still others are money market funds.
Example: Templeton Emerging Markets Fund.
8. Dividend Funds - are those that invest primarily in high quality preferred and sometimes common shares of taxable corporations in order to obtain maximum dividend income.
Example: Allied Dividend Fund.
9. Real Estate Funds - are those which invest in income-producing real property in order to achieve long-term growth through capital appreciation and the reinvestment of income.
Example: Investors Real Property Fund.
10. Ethical Funds - Investment decisions are guided by moral criteria. These criteria vary from fund to fund. One ethical fund may avoid investing in companies that profit from tobacco, alcohol or armaments, while another fund may invest according to certain religious beliefs.
Example: VanCity Investment Services Ltd.'s Ethical Growth Fund.
Read more about trading methods in the financial markets at Envision Investor [http://envisioninvestor.com/].
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