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Mutual Funds

Differences Between Types of Mutual Funds

What is the final category of funds?

The last category of funds is index funds. Index funds purchase a share in each of the stocks that compose a certain index, such as the S&P 500 or the Dow, and seek to mimic the returns the index may obtain. These funds have the lowest management fees, since there is very little management needed to maintain the portfolio; the managers are merely buying shares weighted exactly as the index. This enables an investor to minimize his risk by having the volatility of the portfolio distributed over dozens—if not hundreds or thousands—of stocks. Ultimately, the return you receive is the same as the return of that index in any given period of time.



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