Learning Center

Mutual Funds

Features of Mutual Funds and Risk

When you purchase shares in a mutual fund, your dollars are invested in a large number of companies all at once, and your investment risk is spread out over many stocks of many companies, not just one. With mutual funds, your potential for risk is less. The ups and downs in the value of your investment are potentially less with a mutual fund than with an individual stock because you are more diversified.

Mutual funds make it easy for you to invest in stocks and bonds. The two main advantages of investing your money in mutual funds are 1) you receive professional money management and 2) you are able to truly diversify your holdings with a small sum of money.

Each mutual fund has one or more fund managers who are skilled in the principles of money management. They have access to a huge database of research—so basically, you're leaving the driving to them.

Each fund also has a particular objective. That objective is defined in the fund's prospectus, which describes a mutual fund and offers its shares for sale. The prospectus provides information such as investment objectives, charges, expenses, and operating policies. A prospectus must be provided to an investor at the time of sale. The investor should read it carefully before sending money or investing.

The objective could be, for example, long-term growth, current income, or a combination of income and growth. For example, the objective of XYZ fund is long-term growth. To accomplish the fund's objective, the fund manager invests the money received from its shareholders (that's you) by purchasing shares of many individual companies (or leaving a small portion in cash).

Some stock mutual funds can own shares of stock from a few hundred companies, thereby limiting their holdings in any one company to no more than 5–6 percent of all the assets in the mutual fund. This is true diversification and your risk generally is less than if you invested in just one or two individual stocks.

Let's look at the different choices available.

Asset

Type of Fund

Expected Return

Risk

Other

Specialty Fund

Higher

Most Risk

International Stocks and Bonds

International Fund

Global Stocks and Bonds

Global Fund

Stocks

Aggressive Growth Fund

Stocks

Growth Fund

Stocks

Index Fund

Mostly Stocks

Growth and Income Fund

Mostly Stocks

Equity-Income Fund

Stocks and Bonds

Asset Allocation Fund

Stocks and Bonds

Balanced Fund

Bonds

Corporate Bond Fund

Bonds

Mortgage-Backed Bond Fund

Bonds

Single-State, Tax-Exempt Bond Fund

Bonds

Municipal Bond Fund

Bonds

U.S. Government Bond Fund

Cash

Money Market Fund

   

Lower

Least Risk

 

IMPORTANT NOTE: With all mutual funds, the value of your investment could decline so you could lose money. Funds are subject to the general risks associated with the markets and securities in which they invest, including the risk that the value of a portfolio may be impacted gradually or sharply by general conditions of the market, changes in interest rates, or the performance of an individual company, industry, or economy. You should consider a fund's investment objectives, risk, charges, and fees carefully before investing. This and other important information about the investment company are contained in the prospectus, which can be obtained from your financial professional and should be read carefully before investing. Investment return and principal value may fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA/SIPC. Eaton Federal Financial Services is a trade name of the bank. Infinex and the bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.