when researching the returns of a mutual fund you ll typically come upon a figure for the total return or the net change in value either up or down over a specific period this includes any interest dividends or capital gains the fund has generated along with the change in its market value during a given period in most cases total returns are given for one five and 10 year periods as well as from the day the fund opened or inception date 
types of mutual fundsthere are many types among the more than 8 700 mutual funds in the u s with most in four main categories stock money market bond and target date funds 5as the name implies this fund invests principally in equity or stocks within this group are assorted subcategories some equity funds are named for the size of the companies they invest in firms with small mid or large sized capitalization others are named by their investment approach aggressive growth income oriented and value equity funds are also categorized by whether they invest in u s stocks or foreign equities to understand how these strategies and sizes of assets can combine you can use an equity style box like the example below 6value funds invest in stocks their managers see as undervalued while aiming at long term appreciation when the market recognizes the stocks true worth these companies are characterized by low price to earnings p e ratios low price to book ratios and dividend yields meanwhile growth funds look to companies with solid earnings sales and cash flow growth these companies typically have high p e ratios and do not pay dividends 7 a compromise between strict value and growth investment is a blend these funds invest in a mix of growth and value stocks to give a risk to reward profile somewhere in the middle large cap companies have market capitalizations of over 10 billion market cap is derived by multiplying the share price by the number of shares outstanding large cap stocks are typically for blue chip firms whose names are recognizable small cap stocks have a market cap between 250 million and 2 billion these companies tend to be newer riskier investments mid cap stocks fill in the gap between small and large cap 8a mutual fund may combine different investment styles and company sizes for example a large cap value fund might include in its portfolio large cap companies that are in strong financial shape but have recently seen their share prices fall these would be placed in the upper left quadrant of the style box large and value the opposite of this would be a small cap growth fund that invests in startup technology companies with high growth prospects this kind of fund is in the bottom right quadrant above small and growth a mutual fund that generates a consistent and minimum return is part of the fixed income category these mutual funds focus on investments that pay a set rate of return such as government bonds corporate bonds and other debt instruments the bonds should generate interest income that s passed on to the shareholders with limited investment risk there are also actively managed funds seeking relatively undervalued bonds to sell them at a profit these mutual funds will likely pay higher returns but aren t without risk for example a fund specializing in high yield junk bonds is much riskier than a fund that invests in government securities because there are many different types of bonds bond funds can vary dramatically depending on when and when they invest and all bond funds are subject to risks related to changes in interest rates index mutual funds are designed to replicate the performance of a specific index such as the s p 500 or the djia this strategy requires less research from analysts and advisors so fewer expenses are passed on to investors through fees and these funds are designed with cost sensitive investors in mind they also frequently outperform actively managed mutual funds and thus potentially are the rare combination in life of less cost and better performance balanced funds invest across different securities whether stocks bonds the money market or alternative investments the objective of these funds known as an asset allocation fund is to cut risk through diversification mutual funds detail their allocation strategies so you know ahead of time what assets you re indirectly investing in some funds follow a strategy for dynamic allocation percentages to meet diverse investor objectives this may include responding to market conditions business cycle changes or the changing phases of the investor s own life the portfolio manager is commonly given the freedom to switch the ratio of asset classes as needed to maintain the fund s stated strategy the money market consists of safe risk free short term debt instruments mostly government treasury bills the returns on them aren t substantial a typical return is a little more than the amount earned in a regular checking or savings account and a little less than the average certificate of deposit cd money market mutual funds are often used as a temporary holding place for cash that will be used for future investments or for an emergency fund while low risk they aren t insured by the federal deposit insurance corporation fdic like savings accounts or cds income funds are meant to disburse income on a steady basis and are often seen as the mutual funds for retirement investing they invest primarily in government and high quality corporate debt holding these bonds until maturity to provide interest streams while fund holdings may rise in value the primary goal is to offer a steady cash flow an international mutual fund or foreign fund invests only in assets located outside an investor s home country global funds however can invest anywhere worldwide their volatility depends on where and when the funds are invested however these funds can be part of a well balanced diversified portfolio since the returns from abroad may provide a ballast against lower returns at home often international in scope regional mutual funds are investment vehicles that focus on a specific geographic region such as a country a continent or a group of countries with similar economic characteristics these funds invest in stocks bonds or other securities of companies that are headquartered or generate a significant part of their revenue within a targeted region examples of regional mutual funds include europe focused mutual funds that invest in that continent s securities emerging market mutual funds which focus on investments in developing economies worldwide and latin america focused mutual funds that invest in countries like brazil mexico and argentina the main advantage of regional mutual funds is that they allow investors to capitalize on the growth potential of specific geographic areas and diversify their portfolios internationally however these funds also carry unique risks such as political instability currency fluctuations and economic uncertainties though they depend on the region sector mutual funds aim to profit from the performance of specific sectors of the economy such as finance technology or health care theme funds can cut across sectors for example a fund focused on ai might have holdings in firms in health care defense and other areas employing and building out ai beyond the tech industry sector or theme funds can have volatility from low to extreme and their drawback is that in many sectors stocks tend to rise and fall together socially responsible investing or so called ethical funds invest only in companies and sectors that meet preset criteria for example some socially responsible funds do not invest in industries like tobacco alcoholic beverages weapons or nuclear power sustainable mutual funds invest primarily in green technology such as solar and wind power or recycling there are also funds that review environmental social and governance factors when choosing investments this approach focuses on the company s management practices and whether they tend toward environmental and community improvement mutual fund fees