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TYPES OF FUND

MONEY MARKET FUNDS   INCOME FUND  

INCOME AND GROWTH FUNDS   GROWTH AND INCOME FUNDS  

BALANCED FUNDS   GROWTH FUNDS  

INDEX FUNDS 

SECTOR FUNDS 

SPECIALIZED FUNDS   ISLAMIC FUNDS  

Not too many years ago, mutual funds were simply broad-basedinvestment instruments created to simplify the intricacies involved ininvesting in separate securities. They also provided a greater measure of safety through broad diversification and the kind of top notch professionalmanagement that is usually out of reach for the small investor. 

Today, however, mutual funds are highly specialized and offer almostunlimited diversity. The types of mutual fund portfolios available run the

gamut from conservative to aggressive, from stocks to bonds, fromdomestic to international portfolios, from taxable to tax-free, and fromvirtually no-risk money market funds to high-risk options funds. The greatvariety of mutual funds available makes it possible to select a fund, orseveral funds, which precisely various types of funds and their primaryobjectives are described below. (They are arranged in order of increasingrisk factors) 

Money Market Fund

We begin with a discussion of money market funds for several reasons: 

1. They are the safest for the novice investor;2. They are the easiest, least complicated to follow and understand;3. Almost without exception, every mutual fund investment company offers moneymarket funds;4. Money market funds represent an indispensable investment tool for the beginninginvestor.5. They are the most basic and conservative of all the mutual funds available;

Money market funds should be considered by investors seeking stability of principal,total liquidity, and earnings that are as high, or higher, than those available throughbank certificates of deposit. And unlike bank cash deposits, money market funds haveno early withdrawal penalties. 

Specifically, a money market fund is a mutual fund that invests its assets only in themost liquid of money instruments. The portfolio seeks stability by investing in veryshort-term, interest-bearing instruments issued by the state and local governments,banks, and large corporations. The money invested is a loan to these agencies, and thelength of the loan might range from overnight to one week or, in some cases, as longas 90 days. These debt certificates are called "money market instruments"; becausethey can be converted into cash so readily, they are considered the equivalent of cash. 

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To understand why money market mutual funds is recommended as an idealinvestment, let me reemphasize just seven of the advantages they offer: 

1. Safety of principal, through diversification and stability of the short-term portfolioinvestments2. Total and immediate liquidity, by telephone or letter

3. Better yields than offered by banks, 1% to 3% higher4. Low minimum investment, some as low as $1005. Professional management, proven expertise6. Generally, no purchase or redemption fees, no-load funds 

Income Funds

The objective of income mutual funds is to seek a high level of current incomecommensurate with each portfolio's risk potential. In other words, the greater the risk,the greater the potential for generous income yields; but the greater the risk of principal loss as well. 

The risk / reward potential is low to high, depending upon the type of securities thatmake up the fund's portfolio. The risk is very low when the fund is invested ingovernment obligations, blue chip corporations, and short-term agency securities. Therisk is high when a fund seeks higher yields by investing in long-term corporate bonds,offered by new, undercapitalized, risky companies. 

Who should invest in income funds? 

§ Investors seeking current income higher than money market rates, who are willing toaccept moderate price fluctuations§ Investors willing to "balance" their equity (stock) portfolios with a fixed income

investment§ Investors who want a portfolio of taxable bonds with differing maturity dates

§ Investors interested in receiving periodic income on a regular basis.

Income and Growth Funds

The primary purposes of income and growth funds are to provide a steady source of income and moderate growth. Such funds are ideal for retirees needing a supplementsource of income without forsaking growth entirely. 

Growth and Income Funds 

The primary objectives of growth and income funds are to seek long-term growth of principal and reasonable current income. By investing in a portfolio of stocks believed tooffer growth potential plus market or above - market dividend income, the fund expectsto investors seeking growth of capital and moderate income over the long term (atleast five years) would consider growth and income funds. Such funds require that theinvestor be willing to accepts some share-price volatility, but less than found in puregrowth funds. 

Balanced Funds

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The basic objectives of balanced funds are to generate income as well as long-termgrowth of principal. These funds generally have portfolios consisting of bonds, preferredstocks, and common stocks. They have fairly limited price rise potential, but do have ahigh degree of safety, and moderate to high income potential. 

Investors who desire a fund with a combination of securities in a single portfolio, andwho seek some current income and moderate growth with low-level risk, would do wellto invest in balanced mutual funds. Balanced funds, by and large, do not differ greatlyfrom the growth and income funds described above. 

Growth Funds

Growth funds are offered by every investment company. The primary objective of suchfunds is to seek long-term appreciation (growth of capital). The secondary objective isto make one's capital investment grow faster than the rate of inflation. Dividend incomeis considered an incidental objective of growth funds. 

Growth funds are best suited for investors interested primarily in seeing their principalgrow and are therefore to be considered as long-term investments - held for at leastthree to five years. Jumping in and out of growth funds tends to defeat their purpose.However, if the fund has not shown substantial growth over a three - to five-yearperiod, sell it (redeem your shares) and seek a growth fund with another investmentcompany. 

Candidates likely to participate in growth funds are those willing to accept moderate tohigh risk in order to attain growth of their capital and those investors who characterizetheir investment temperament as "fairly aggressive." 

Index Funds

The intent of an index fund is basically to track the performance of the stock market. If the overall market advances, a good index fund follows the rise. When the marketdeclines, so will the index fund. Index funds' portfolios consist of securities listed on thepopular stock market indices. 

It is also the intent of an index fund to materially reduce expenses by eliminating thefund portfolio manager. Instead, the fund merely purchases a group of stocks thatmake up the particular index it deems the best to follow. The stocks in an index fundportfolio rarely change and are weighted the same way as its particular market index.Thus, there is no need for a portfolio manager. The securities in an index mutual fundare identical to those listed by the index it tracks, thus, there is little or no need for any

great turnover of the portfolio of securities. The funds are "passively managed" in afairly static portfolio. An index fund is always fully invested in the securities of the indexit tracks. 

An index mutual fund may never outperform the market but it should not lag far behindit either. The reduction of administrative cost in the management of an index fund alsoadds to its profitability. 

Sector Funds

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As was noted earlier, most mutual funds have fairly broad-based, diversified portfolios.In the case of sector funds, however, the portfolios consist of investment from only onesector of the economy. Sector funds concentrate in one specific market segment; forexample, energy, transportation, precious metals, health sciences, utilities, leisureindustries, etc. In other words, they are very narrowly based.

Investors in sector funds must be prepared to accept the rather high level of riskinherent in funds that are not particularly diversified. Any measure of diversificationthat may exist in sector funds is attained through a variety of securities, albeit in thesame market sector. Substantial profits are attainable by investors astute enough toidentify which market sector is ripe for growth - not always an easy task! 

Specialized Funds

Specialized funds resemble sector funds in most respects. The major difference is thetype of securities that make up the fund's portfolio. For example, the portfolio mayconsist of common stocks only, foreign securities only, bonds only, new stock issues

only, over - the - counter securities only, and so on. 

Those who are still novices in the investment arena should avoid both specialized andsector funds or the time being and concentrate on the more traditional, diversifiedmutual funds instead. 

Islamic Funds

In case of Islamic Funds, the investment made in different instruments is to be in linewith the Islamic Shairah Rules. The Fund is generally to be governed by an IslamicShariah Board. And then there is a purification process that needs to be followed, assome of the money lying in reserve may gain interest, which is not desirable in case of 

Islamic investments.