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Types of Mutual Funds

There are several types of mutual funds that can be categorized by a variety of criteria including:

  • Investment objective: What is the goal of the fund? To help preserve the money invested? To seek to generate income? To seek growth but with additional potential for risk?
  • Investment style: Does the fund seek to invest in rapidly growing companies or to invest in those companies considered undervalued by the market? Does the fund hold only securities with long-term or short-term maturities? Does the fund invest in small, mid, or large cap companies?
  • Investment strategy: Is the fund passively managed or actively managed? Does the fund invest in equities, bonds, cash equivalents or a combination?

Mutual funds are generally categorized according to risk and return.

Mutual funds are generally categorized according to risk and return.

Common types of mutual funds include:

See footnotes below for important risk disclosures about specific types of mutual funds.

Fund Type
Objective
Invests In
Money Market Funds1
  • Seeks to provide higher degree of relative safety as well as some current income.
  • Generally strives to maintain a constant net asset value of $1 per share
  • Short-term (less than thirteen months), highly liquid debt securities
  • May include certificates of deposits, U.S. Treasury bills, and commercial paper.
Bond Funds2
Seek to provide current income
  • Certificates of debt issued by corporations and federal/state/local governments.
  • May also invest in foreign bonds.4
Asset Allocation Funds/ Growth and Income Funds
Seeks to provide both growth of investment and current income
Usually contains a mix of stock and bond securities
Stock Funds
Seeks to provide growth of investment and appreciation of the share price.
  • Stock of companies with potential for growth
  • May also invest in stocks of different market capitalization3, industry sectors, and foreign stocks4
Global/ International Funds4
Varies by fund
  • Global - a mixture of stocks or bonds throughout the world including the US
  • International - a mixture of stocks or bonds throughout the world excluding the US
Sector Funds5
Seeks to provide growth of investment that is usually non-diversified.
Generally a single industry sector
Index funds
Generally seeks to mirror a specific index6, such as the S&P 500.
Companies that comprise the index
Socially Responsible
Varies by fund
Generally avoid investing in socially controversial companies according to the funds objective. For example: tobacco, alcohol, companies harming the environment

After determining your financial goals and risk tolerance, research the types of mutual funds that interest you or consult with your Financial Advisor to determine if the funds' objectives and strategies fit your needs. Please read each prospectus carefully before you invest.

1An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds generally seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

2Bond funds invest in corporate, municipal or government debt obligations of different maturities and interest rates. Tax-exempt bond funds generally invest in the debt obligations issued by the U.S. Treasury, other U.S. government agencies and U.S. corporations. They also may invest in high-yield and foreign (non-U.S.) bonds. Investments in lower-rated, higher yielding bonds are subject to additional risks because they tend to be more sensitive to economic conditions and, during sustained periods of rising interest rates, may experience interest and/or principal defaults. A portion of a municipal bond fund's distributions may be subject to federal, state and/or local taxes or to the federal alternative minimum tax (AMT). Treasury bills are guaranteed by the U.S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value. Mutual fund shares are not guaranteed and you may lose principal.

3Investing in stocks of medium-sized companies may be more volatile and less liquid than large company stocks. There are also additional risks associated with investments in smaller and/or newer companies because their shares tend to be less liquid than securities of larger companies. Further, shares of small and new companies generally are more sensitive to purchase and sales transactions and changes in the issuer's financial condition and, therefore, the prices of such stocks may be more volatile than those of large company stocks.

4
Some mutual funds invest in international securities, which can involve different risks than U.S. investments. The risks include political and economic instability, changing currency exchange rates, foreign taxes and differences in financial accounting standards. You should pay attention to these risks if you're considering investing in an international or global fund.

5Sector funds concentrate investments in firms that fall into specific industries or that produce related products or services. Sector funds often are non-diversified funds and entail additional risks and volatility. Non-diversified funds are more susceptible to financial, market and economic events affecting the particular issuers and industry sectors in which they invest and therefore may be more volatile or risky than less concentrated investments.

6
Indices are unmanaged and do not reflect the payment of advisory fees and other expenses associated with an investment in a mutual fund. Investors cannot directly invest in an index.


 
Investment, Insurance and identity theft protections plans are: Not Insured by the FDIC or any federal government agency Not a deposit of or guranteed by any bank May lose value
These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.
Contact Wells Fargo Advisors or your investment professional for a mutual fund's current prospectus, which contains more complete information on investment objectives, charges, fees, risks, and expenses. Please read and consider the information in the prospectus carefully before investing.

Mutual funds available without transaction fees may change at any time without notice. Therefore, any mutual funds purchased without a transaction fee may be subject to a transaction fee for subsequent purchases or upon liquidation.
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