Anatomy of a Mutual Fund

Below is a description of the most common different types of mutual funds that can add balance and diversification to an investment portfolio

Aggressive Growth Funds - Aggressive growth funds aim to maximize capital gains. These funds have low current yields because they generally don't invest for dividend income. If the market is going up, these are the funds that will benefit the most. Conversely, aggressive growth funds are the ones hardest hit in bear markets.

Growth Funds - Growth funds are similar to aggressive growth funds, but may include some large and dividend paying companies.

Growth and Income Funds - Growth-income funds are often invested in blue chip stocks. These funds may also invest in utilities and bonds to increase dividend yield. 

Income Funds - Income funds focus on dividend income from bonds, while also enjoying the capital gains that usually accompany investment common stocks. These funds are particularly favored by conservative investors.

Asset Allocation Funds - Asset allocation funds don't invest in just stocks. Instead, they focus on stocks, bonds, government securities and money market funds. This portfolio approach decreases the reliance on any one segment of the marketplace.

Bond Funds - Bond funds invest in corporate and government bonds. The price of these funds often changes in the opposite direction of interest rates.  In other words, when interest rates raise the trading price of the bond funds generally decline.

International Funds - International funds hold primarily foreign securities. There are two elements of risk in this investment: the normal economic risk of holding stocks; as well as the currency risk. 

Precious Metal Funds - Precious metal funds invest in gold, silver, and platinum. Gold and silver often move in the opposite direction from the stock market, and thus these funds can provide a hedge against investments in common stocks.

Money Market Funds - In addition to stock and bond mutual funds, there are money market funds, which are essentially mutual funds that invest solely in government-insured short-term instruments. These funds nearly always reflect the current interest rates, and rarely engage in interest-rate speculation.