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Types of Mutual Funds

May 11, 2009 by admin

Types of Mutual Funds

Open-end funds

Closed-end funds

Funds classified by asset class

Open-end funds

The vast majority of mutual funds are open-end funds

These funds issue or buy back their shares on a daily basis

The number of shares outstanding changes daily

Shares always trade at par value (never at a premium or discount to underlying value)

Closed-end funds

Very few funds are closed-end funds

Rarely issue new shares or buy back old shares

Fund shares trade on stock exchanges like normal stocks

Usually trade at a discount to net asset value

Never buy a closed-end fund which is trading at a premium

Funds classified by asset class

You can buy a fund for almost any asset you want

  • Convertible bonds
  • Adjustable rate mortgages
  • Real estate
  • Gold
But the normal asset classes, and their approximate long-term returns are
Inflation 3%
Money market funds 3.5
Long-term US bonds 5.5
Large company stocks 10
Small company stocks 12

After inflation and taxes, only stocks have a positive return

Remember that because of compounding, improving your returns by a few percent enables you to greatly increase your wealth over long periods of time