Mutual funds provide a way to reduce the risks associated with investing in individual stocks and bonds while also achieving competitive returns. There are four primary advantages of investing in mutual funds.

• Diversification
  Even with a minimal investment you can purchase shares of the fund, which in turn, purchases shares of many different companies in different industries and different geographic areas.
• Professional Management
  Mutual funds are run by professional fund managers. It is their job to buy and sell stocks and bonds within the fund to meet the stated objectives. You get the benefit of their knowledge and experience.
• Liquidity
  You can buy and sell mutual fund shares on short notice, so your money is available to you anytime. Remember, though, if you are using mutual funds for a retirement plan there are still restrictions on when you can actually withdraw money.
• Flexibility
  You can choose a fund or portfolio of funds with investment objectives that most closely match your own goals.

There are many different kinds of mutual funds with a variety of investment objectives. A few of the types of funds you may see include the following.

• Balanced Funds
  Combine stocks and bonds in a single fund. Stocks tend to provide more long-term growth in value and less current income paid through dividends. Bonds tend to provide more current income through interest and dividends paid. Balanced funds may be tilted toward growth or income or evenly split.
• Growth Funds
  Comprised primarily of stocks which tend to grow due to increases in the market value more than through the payment of dividends.
• Fixed Income Funds
  Comprised primarily of bonds and other securities that tend to pay interest and dividends on a regular basis. The market value of a fixed income fund will also fluctuate but these funds tend to pay more current dividends and provide less change in market value than growth funds.
• Index Funds
  Mirror a market index, or buy the same securities that comprise the index. For example, a fund that mirrors the S&P 500 would include the stocks of the 500 leading companies by sector on the NYSE or NASDAQ. This index is used to measure performance
  of the broad U.S. economy. Index funds are not actively managed; they simply hold the securities that the guiding index contains.
• Managed Funds
  Rather than just following an index the fund manager bases decisions on his knowledge, experience and research to guide the fund. The holdings in the fund may change more often than an index fund.
• Global Funds
  International funds invest exclusively in foreign securities while global funds may include both U.S. and foreign securities.
• Sector Funds
  Invest all their money in one market sector such as energy, technology or manufacturing.

Some mutual funds have sales charges or “loads” that are added to the actual share price.

• Front Load
  A sales charge is added to the share price at the time you invest money into a fund. These sales charges vary from fund to fund but typically range from 3% to 5%, but may be more or less.
• Back Load
  Also called a contingent deferred sales charge, is not added when you purchase shares but is deducted from your holdings if you sell your shares too soon. Back load funds may require that you hold your shares for from 2 to 6 years to avoid these charges if you take money out.
• No-Load
  A true no-load fund allows you to buy and sell shares at any time without the addition of a sales charge.