Types of Mutual Funds

Becoming familiar with the different mutual fund types will help you select the funds appropriate for your personal financial situations. It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

While there are many types of mutual funds, most typically fall into the following categories, based on their investment objectives:

Equity or stock funds

Aggressive growth funds: These funds seek long-term growth by investing in stocks of small to mid-sized companies. Stocks of these companies tend to have greater potential than the market, but also greater risk.

Growth funds: These funds seek long-term growth by investing in stocks of large, well-known corporations. These funds are typically less volatile than funds that invest in small and mid-sized companies but do not offer as much growth potential.

The universe of equity funds can also be divided by where they invest: U.S. stocks or international stocks.*

Combined or hybrid funds

Growth and income funds: These funds typically invest in stocks and bonds. Stocks are known for their growth potential, bonds for their income-producing capabilities. Growth and income funds do not have as much growth potential as growth funds but tend to be less volatile in price.

Bond or fixed income funds

Income funds: Income funds generate a steady stream of income, usually monthly or quarterly, by investing in bonds or other income-producing securities. They tend to provide more income and are typically less risky than funds that invest strictly in stocks or a combination of stocks and bonds.

Money market or cash equivalent funds

Money market funds: Money market funds are mutual funds that invest in money market securities such as Treasury Bills, Certificates of Deposit, and commercial paper. Money market funds have historically been highly liquid, relatively safe investments.**

*Investing in international markets involves certain risks not typically associated with investing in the United States including foreign currency fluctuations and economic or political risks.

** Investments in money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 269 KB) .

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