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Value, Growth, And Income

Another way funds can be classified is based on their investment styles. In broad terms these funds could fall into one of these categories.

Value Fund — This type of fund normally has most of its portfolio invested in stocks with high dividend yields. This type of stocks experience little volatility and typically are safe investments paying dividends year after year, which are passed on to the fund investors. Chances are that these stocks would appreciate over time, but this is normally a slow process. Many of these funds also invest in cyclicals which tend to rise and fall depending on the economy. The objective of these funds is a combination of capital appreciation (growth) and income generation (through dividends) while keeping risk at a minimum.

Growth Fund — These funds normally invest in stocks with a high growth potential. These stocks are riskier than value stocks, as they have a potential to go sour. Many of these stocks do not pay dividends, so many growth funds generate little or no income. The objective of these funds is mostly capital appreciation but at the cost of higher risks.

Income Fund — These funds are normally heavily invested in bonds which renders them relatively safe, barring those who invest in junk bonds which have high yields but also have a risk of default. The objective of these funds is to provide a steady income for their investors using the interest (coupon) payments they receive on bonds in their portfolios.

Again, the above styles are generally broad categories of funds and not necessarily strict styles that funds may have. Many funds have more specific styles than those mentioned above and many others use a …