What is the average mutual fund interest rate

There are very few other employees in a mutual fund company. The investment adviser or fund manager may employ some analysts to help pick investments or perform market research. A fund accountant is kept on staff to calculate the fund's NAV, the daily value of the portfolio that determines if share prices go up or down.

Mutual funds need to have a compliance officer or two, and probably an attorney, to keep up with government regulations. Most mutual funds are part of a much larger investment company; the biggest have hundreds of separate mutual funds. Some of these fund companies are names familiar to the general public, such as Fidelity Investments, The Vanguard Group, T.

Rowe Price, and Oppenheimer. Mutual funds are divided into several kinds of categories, representing the kinds of securities they have targeted for their portfolios and the type of returns they seek. There is a fund for nearly every type of investor or investment approach. Other common types of mutual funds include money market funds, sector funds , alternative funds, smart-beta funds , target-date funds, and even funds of funds, or mutual funds that buy shares of other mutual funds.

The largest category is that of equity or stock funds. As the name implies, this sort of fund invests principally in stocks. Within this group are various subcategories. Some equity funds are named for the size of the companies they invest in: small-, mid-, or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others. Equity funds are also categorized by whether they invest in domestic U. There are so many different types of equity funds because there are many different types of equities.

A great way to understand the universe of equity funds is to use a style box, an example of which is below. The idea here is to classify funds based on both the size of the companies invested in their market caps and the growth prospects of the invested stocks. The term value fund refers to a style of investing that looks for high-quality, low-growth companies that are out of favor with the market.

Conversely, spectrums are growth funds , which look to companies that have had and are expected to have strong growth in earnings, sales, and cash flows. A compromise between strict value and growth investment is a "blend," which simply refers to companies that are neither value nor growth stocks and are classified as being somewhere in the middle.

The other dimension of the style box has to do with the size of the companies that a mutual fund invests in. Market cap is derived by multiplying the share price by the number of shares outstanding.

Large-cap stocks are typically blue chip firms that are often recognizable by name. These smaller companies tend to be newer, riskier investments. Mid-cap stocks fill in the gap between small- and large-cap. A mutual fund may blend its strategy between investment style and company size.

For example, a large-cap value fund would look to large-cap companies that are in strong financial shape but have recently seen their share prices fall and would be placed in the upper left quadrant of the style box large and value. The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects: small-cap growth. Such a mutual fund would reside in the bottom right quadrant small and growth.

Another big group is the fixed income category. A fixed-income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments.

The idea is that the fund portfolio generates interest income, which it then passes on to the shareholders. Sometimes referred to as bond funds, these funds are often actively managed and seek to buy relatively undervalued bonds in order to sell them at a profit.

These mutual funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much riskier than a fund that invests in government securities.

Furthermore, nearly all bond funds are subject to interest rate risk , which means that if rates go up, the value of the fund goes down. Another group, which has become extremely popular in the last few years, falls under the moniker " index funds.

This strategy requires less research from analysts and advisors, so there are fewer expenses to eat up returns before they are passed on to shareholders. These funds are often designed with cost-sensitive investors in mind. Balanced funds invest in a hybrid of asset classes, whether stocks, bonds, money market instruments, or alternative investments.

The objective is to reduce the risk of exposure across asset classes. This kind of fund is also known as an asset allocation fund. There are two variations of such funds designed to cater to the investors objectives.

Some funds are defined with a specific allocation strategy that is fixed, so the investor can have a predictable exposure to various asset classes.

Other funds follow a strategy for dynamic allocation percentages to meet various investor objectives. This may include responding to market conditions, business cycle changes, or the changing phases of the investor's own life.

While the objectives are similar to those of a balanced fund, dynamic allocation funds do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as needed to maintain the integrity of the fund's stated strategy.

The money market consists of safe risk-free , short-term debt instruments, mostly government Treasury bills. This is a safe place to park your money. You won't get substantial returns, but you won't have to worry about losing your principal. A typical return is a little more than the amount you would earn in a regular checking or savings account and a little less than the average certificate of deposit CD. Income funds are named for their purpose: to provide current income on a steady basis.

These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity in order to provide interest streams.

As such, the audience for these funds consists of conservative investors and retirees. Because they produce regular income, tax-conscious investors may want to avoid these funds. An international fund or foreign fund invests only in assets located outside your home country. Global funds , meanwhile, can invest anywhere around the world, including within your home country. It's tough to classify these funds as either riskier or safer than domestic investments, but they have tended to be more volatile and have unique country and political risks.

On the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification , since the returns in foreign countries may be uncorrelated with returns at home. Although the world's economies are becoming more interrelated, it is still likely that another economy somewhere is outperforming the economy of your home country. This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular but don't necessarily belong to the more rigid categories we've described so far.

These types of mutual funds forgo broad diversification to concentrate on a certain segment of the economy or a targeted strategy.

Sector funds are targeted strategy funds aimed at specific sectors of the economy, such as financial, technology, health, and so on. Sector funds can, therefore, be extremely volatile since the stocks in a given sector tend to be highly correlated with each other. There is a greater possibility for large gains, but a sector may also collapse for example, the financial sector in and Regional funds make it easier to focus on a specific geographic area of the world.

This can mean focusing on a broader region say Latin America or an individual country for example, only Brazil. An advantage of these funds is that they make it easier to buy stock in foreign countries, which can otherwise be difficult and expensive. Just like for sector funds, you have to accept the high risk of loss, which occurs if the region goes into a bad recession.

Socially responsible funds or ethical funds invest only in companies that meet the criteria of certain guidelines or beliefs.

For example, some socially responsible funds do not invest in "sin" industries such as tobacco, alcoholic beverages, weapons, or nuclear power.

The idea is to get competitive performance while still maintaining a healthy conscience. Other such funds invest primarily in green technology, such as solar and wind power or recycling.

A twist on the mutual fund is the exchange traded fund ETF. These ever more popular investment vehicles pool investments and employ strategies consistent with mutual funds, but they are structured as investment trusts that are traded on stock exchanges and have the added benefits of the features of stocks. For example, ETFs can be bought and sold at any point throughout the trading day.

ETFs can also be sold short or purchased on margin. ETFs also typically carry lower fees than the equivalent mutual fund. Many ETFs also benefit from active options markets, where investors can hedge or leverage their positions. ETFs also enjoy tax advantages from mutual funds.

Compared to mutual funds , ETFs tend to be more cost effective and more liquid. The popularity of ETFs speaks to their versatility and convenience. A mutual fund will classify expenses into either annual operating fees or shareholder fees. Annual operating fees are collectively known as the expense ratio.

A fund's expense ratio is the summation of the advisory or management fee and its administrative costs. Shareholder fees, which come in the form of sales charges, commissions, and redemption fees, are paid directly by investors when purchasing or selling the funds. Sales charges or commissions are known as "the load" of a mutual fund.

For more on how to choose a mutual fund, skip ahead to this section. Data current as of October 6, The mutual funds above are actively managed, which means they try to beat stock market performance — a strategy that often fails. Here's our picks for best brokerages for mutual funds. When you're ready to invest in funds, here's what to consider:. Decide whether to invest in active or passive funds, knowing that both performance and costs often favor passive investing. Understand and scrutinize fees.

A broker that offers no-transaction-fee mutual funds can help cut costs. Build and manage your portfolio, checking in on and rebalancing your mix of assets once a year. Limited time offer. Terms apply. Managing your portfolio also means managing your expectations, and different types of mutual funds should bring different expectations for returns. Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks — and different categories of stock mutual funds carry different risks.

Learn more about stock mutual funds versus index funds. Bond mutual funds, as the name suggests, invests in a range of bonds and provide a more stable rate of return than stock funds. As a result, potential average returns are lower. Bond investors buy government and corporate debt for a set repayment period and interest rate. While no one can predict future stock market returns, bonds are considered a safer investment as governments and companies typically pay back their debt unless either goes bust.

These are fixed-income mutual funds that invest in top-quality, short-term debt. They are considered one of the safest investments you can make. Learn more about money market funds. Chasing past performance may be a natural instinct, but it often isn't the right one when placing bets on your financial future. Remember, investing is a marathon—it takes endurance, patience and willpower, but it will pay off in the end. Bring up your investing concerns and goals with an investment professional in your area today!

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