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What are Income Funds, Growth Funds, and Balanced Funds?
Open-end and closed-end mutual funds are sub-divided into certain categories depending on their objectives. The objective of mutual funds is an important parameter because most mutual fund investors have specific aims when they invest in MFs. Therefore, the types of mutual funds vary with the primary objectives of the funds.
The primary objective of income funds is to generate high current income. Therefore, the mutual fund managers of income funds invest in high-yielding shares in the market.
It must be noted that income funds invest in high-risk shares because the investors of income funds seek to take a little risk to earn more income from the funds.
The investors of open-ended income funds often have a target of income and they exit from the funds once their requirement is met.
The primary objective of growth funds is to grow the value of an investment. This is usually achieved by investing in a portfolio of shares that offer more growth than specific income-generating shares.
The larger portion of a growth fund is invested in equity shares with high growth potential.
The basic idea of growing income is present in the case of growth funds and therefore, the moderate risk is inherent in the case of growth funds.
Balanced funds have both the objectives of income funds and growth funds. Therefore, the fund managers of balanced funds invest in both equities and bonds.
The investors in balanced funds are often risk-averse and they seek to cancel the risks inherent in income and growth funds.
Balanced funds are meant for investors who seek less income but also less risk. Therefore, the investors in balanced funds are aware of the risk of the markets and avoid shares that have too high a risk.
It must be noted that although the income, growth, and balanced funds have varying forms of risk, none of them are risk-free. The nature of the markets is such that even the most stable share has some risk. So, investing in mutual funds is not free from risks however stable and balanced the investment portfolio is.
Mutual funds are considered a better way of investing because the funds often negate the drop in profit by investing in various types of growth shares. The fund managers of mutual funds are aware of the market trends and they can manage the investors’ money better due to their experience of dealing with different types of market movements.
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