Classification of Investment Funds

Classification of Investment Funds

Investment funds are always categorized in accordance to the principal investment, which is as per the description of the prospectus and the goal of the investment. There are four key classes of investment funds, namely: bonds and fixed income funds, money market funds, hybrid funds and stock or equity funds. The four groups may be further subdivided through investment goal, approach and specific focus. The securities exchange commission demands that investment funds name should not be contradictory with the investments of the fund. For instance, ABC New Jersey Tax Free Fund should be invested in New Jersey and has to invest under regular conditions a minimum of 80 percent of the funds in bonds that are excused from the income tax. Stocks, hybrid and bond funds, on the other hand, may be categorized as either actively managed or passively managed funds.

Money market funds

Money market funds are mainly invested in the money market vehicles that comprise fixed income securities and have a limited period of time to mature. They also have an elevated credit quality. Investors frequently utilize money market funds as a alternative to bank saving accounts despite the fact that money market funds are not insured by the government which is disparate to the savings accounts offered by banks.

Money market funds endeavor to sustain a $1.00 per share net asset worth. This implies that investors are paid from the interest revenue from the fund and as such are exempted from capital losses and gains. In the event that a fund falls short to maintain the $1.00 per share value as a result of the decline in value of the securities it is describe as having broken the buck. In the history of Money market funds, only the Community Bankers U.S. Government Money Market Fund and the Reserve Primary Fund have broken the buck in 1994 and 2008 respectively. Statistics have shown that, of the total open end funds in 2011, money market funds formed 23...