Mutual fund categories at a glance | Value Research

What is a fund category?

One mutual fund can have different investment objectives and principal investment features from another. However, investors seek to know the difference to allocate their money around a mix of funds with different risk and return characteristics. Here is where the fund category enters the picture. The structures of fund categories are varies depending on the fund’s investment objective. Hence, investors may opt to use different fund category variations when they create their portfolios.

Portfolio managers and portfolio of funds

Nowadays, many portfolio managers build a portfolio of funds using fund categories. For example, one of the popular examples is professionally managed funds. Where can investors find how the structure of their fund of funds? It is in the asset allocation or the balanced mutual fund portfolios. The aim is to use funds from various fund categories to achieve the targeted asset allocation objective.

Retail investors and fund investing

Retail investors can use many investment styles and balancing objectives when choosing funds for their portfolios. The first step in creating a comprehensive portfolio of mutual funds is creating an investment profile detailing. This investment profile detailing involves interests, objectives, goals, and risk tolerances. Many people make this possible through a wrap account. On the other hand, investors can always choose their own investment profile. It is somehow like a DIY or do-it-yourself strategy.

There are massive fund category options for investors in all of the investment universe. Of course, we have standard investment options which are focused on targeted asset allocations. The most common example include stocks and bonds. We also have managed objective categories. They are also pretty famous in the market. They are made from different investment blends and styles. Hence, investors can invest through a popular market segment objective. These managed objective funds may comprise strategies based on income, asset, value, growth, asset allocation blend, and the like.

But what is a targeted asset fund category?

We have been mentioning targeted asset fund categories since earlier, but what do they mean? Many investors opt to invest by asset category because this allows them to make a portfolio of funds that is purely defined by their targeted asset holdings. And when we say targeted asset holdings, we usually refer to bond funds, stock funds, and any other type of funds that are significantly invested purely in an individual asset class.

The basic categories of stock funds are defined by the company size where the fund invests. It can be a large-cap, mid-cap, or small-cap. For bond funds, it is their average portfolio maturities and credit quality. In terms of portfolio maturity, it can be long, intermediate, or short. For credit quality, it can be high, medium, or low. Stocks funds will always be ideal for the aggressive and the bonds for the conservative.

And finally, we have managed objective fund categories.

There are many managed objective fund categories. Beyond the usual categories that we encounter, managed objective fund categories tend to have more specific objectives such as value, growth, and income. These may include hybrid funds, which are also known as asset allocation. This is ideal for investors who have more specific investment goals, short-term goals, and longer-term objectives. The hybrid is flexible since this category applies to conservative, moderate, and even aggressive growth funds with different asset classes and allocations. They encompass target-date strategies. Hence, investors can have a diversified portfolio of investments throughout different asset allocations. They can change in the long run to meet the investor’s goal for target-date utilization.

By Zigong