Mutual Funds and Unit Trusts are generally categorized according to their investment objectives and their investment policies. Some collective investment schemes focus on equities, bonds, (or fixed income securities), money market instruments, or other securities.
Common Types of Funds are:
- Money Market Funds
These funds invest in short-term securities (less than one year to maturity), corporate and government debt securities such as treasury bills and corporate notes, commercial papers; fixed deposits, etc. Some money market funds specialize in or invest only in Treasury Bills. These are generally very low-risk funds offering moderate returns.
- Fixed Income Funds
These funds invest in debt securities like bonds, debentures, and mortgages that pay regular interest, or in corporate preferred shares that pay regular dividends. The goal, typically, is to provide investors a regular income stream with low risk.
These are funds that invest primarily in common shares (equities) of local or foreign companies (if allowed) but may hold other assets as well. The goal is typically geared towards long-term growth through capital appreciation of the assets held. Some growth funds focus on large ‘blue-chip’ companies, while others invest in smaller or riskier companies. The performance will be affected by the success or failure of specific investments and by the performance of the stock markets.
- Balanced Funds
These are funds that invest in a ‘balanced’ portfolio of equities, long-term debt securities, and money market instruments with the objective of providing reasonable returns with low to moderate risk.
- Global and Foreign Funds
These are funds which may be fixed income, growth, or balanced funds that invest in foreign securities. These funds can offer investors international diversification and exposure to foreign companies although they are subjected to risks associated with investing in foreign countries and foreign currencies.
- Specialty Funds
These are funds that invest primarily in a specific geographical area (e.g. Africa) or in a specific industry (e.g. high-technology companies). As a result, specialty funds are subjected to certain risk-levels in relation to the market in which it specializes. Types of risks specialty funds face include foreign exchange, political, geographical, or sectoral (industry) risks.
These are funds that invest in a portfolio of securities selected to represent a specified target index or benchmarks, such as the GSE composite index or GSE financial stock index. The associated risk is directly related to the risk of the market that the index is measuring, such as the stock market.
This is also known as multi-manager investment. A fund of funds is a collective investment scheme that invests in other funds instead of investing in stocks, bonds or other securities. They specialize in tracking the performance of other funds and investing in them. They may invest in other mutual funds or venture into capital hedge funds, private equity funds, investment trust, etc.