3 Different Types of Mutual Funds to Invest In 2024 📊

A mutual fund is a group of investments bundled together. These package deals are overseen by fund managers, who pool your money with other investors’ cash to buy a selection of stocks, bonds, and other assets to build a portfolio. Instead of going all-in on one or two stocks, investing in a mutual fund means your portfolio is diversified from the get-go. 🛍️📈

The difficult part is choosing one of the thousands of funds on the market. Not only do you need to pick a successful fund, but you also need to choose from among several different varieties.

When you invest in an equity mutual fund, your money will go primarily into stocks of publicly traded companies. As a result, equity funds act more like stocks: They have a higher potential for growth but more risk. Equity funds can be a good choice if you're young, as you have more time to recover from a sudden downturn. 💹📊

Equity funds by company size:
✔ Nano-cap: if the companies' shares are worth less than $50 million. 💼
✔ Micro-cap: if the companies’ shares are worth between $50 million and $300 million. 💰
✔ Small-cap: if the companies’ shares are worth between $300 million and $2 billion. 🏦
✔ Mid-cap: the companies’ shares are worth between $2 billion and $10 billion. 📈
✔ Large-cap: the companies’ shares are worth more than $10 billion. 💼🏛️
Smaller companies tend to be more vulnerable and less "proven" entities, so they're often considered riskier investments. 🎢

Types of equity mutual funds:
✔ Growth Funds: Invest in companies that are growing very fast. Your fund managers will aim to sell those stocks for more money than they bought them for. All this buying and selling means growth funds tend to come with higher fees. They can make investors more money, sometimes pretty quickly, but are vulnerable to poor bets and the whims of the market. 💸📈
✔ Value Funds: Invest in stocks and other securities your fund managers believe are currently undervalued. In essence, they're bargain hunting. These funds hold on to companies for a long time, hoping they grow in value and give investors bigger and more reliable dividends. With this stability come lower fees and less risk. 🛒📉

On the other side of the spectrum from equity mutual funds are fixed-income mutual funds. As the name suggests, these funds invest in securities that will pay you and your fellow investors on a consistent basis. Fixed-income funds try to provide you stable, passive income — not a big windfall. They're a good choice if you're nearing retirement and can't afford to have your portfolio plummet in the next few years. 🏦📉

Types of fixed-income mutual funds:
✔ Bond Funds: Mutual funds that don’t invest in company stock but rather in government and corporate debt. A bond is essentially a loan, with you collecting the interest. The rate of return usually isn't stellar, but it's better than leaving your money in your bank account. 📊🏛️
You can also find fixed-income mutual funds that focus on specific types of debt, such as:
✔ Municipal Bond Funds
✔ Corporate Bond Funds
✔ Mortgage Funds
✔ Foreign Bond Funds

Another type of fixed-income mutual fund is a Money Market Fund. These funds invest in reliable short-term debt, like U.S. Treasury bonds or certificates of deposit. They aim to be some of the safest investments around. Meanwhile, high-yield or "junk" bond funds pick up debt from borrowers who are at risk of defaulting on their loans. You'll get more money in interest for accepting the danger. 💸🏦

If you don't want to go hard on any of these strategies, there's a middle ground with hybrid mutual funds. Blended funds are equity funds that go for a mix of growth and value stocks. If you want reliable payouts too, growth-and-income funds and equity-income funds target strong stocks that also give good dividends. 📊🛒

Balanced funds — also called asset allocation funds — try to create a portfolio with a mix of growth potential and stable income. They tend to have a fixed ratio: For example, a balanced fund might keep 60% of your money in stocks and 40% in bonds. One popular type of balanced fund is called a target-date fund. Your portfolio will gradually shift from an emphasis on growth with stocks to stability with bonds as you near retirement. 📊📈