MUTUAL FUNDS 

A mutual fund is a company which pools money from many investors and invests the money in securities such as government bonds , shares and short-term debentures . 

The combined holdings of the mutual fund are known as its portfolio. 

Investors buy shares in mutual funds.

Investors of mutual funds can be retail or institutional . Which means anyone can invest in them.

Mutual funds are often classified by their principal investments as money market funds , fixed income , equity funds , stock and bonds . 

Funds can be categorized as index funds , which are passively managed funds which matches the performance of an index or actively managed funds . 

Hedge funds are not mutual funds as these funds cannot be sold to the general public . 

Fund Structure 

Open end fund 

 When a company is willingly to buy back their shares from their investors at a price higher than a  market price . Basically it is a diversified portfolio of pooled investor money that can issue an unlimited number of shares . The fund sponsors sells shares directly to investors and redeems them as and when required . 

These shares are priced daily , depending upon their current net asset value (NAV) . 

Mutual funds , Exchange traded funds are types of open end funds . 

Open end funds are simply referred to as mutual funds.

Unit Investment funds 

Unit investment trusts are issued to the public . It is an investment company that offers a fixed portfolio , generally bonds and stocks as they are redeemable units to investors for a specific period of time . It is designed  to provide dividend income . Unit investment trust combined with closed end funds , and mutual funds are defined as investment companies . 

Closed-end funds 

A closed end fund is a  pooled asset which raises a fixed amount of capital through an initial public offer (IPO) and then lists shares for trade on a  stock exchange. 

Like a mutual fund, a closed-end fund has a professional manager overseeing the portfolio and actively buying and selling holding assets. 

Similar to an exchange-traded fund, it trades like equity, as its price fluctuates throughout the trading day.

 However, the closed-end fund is unique in that, after its IPO, the fund's parent company issues no additional shares, and the fund itself won't redeem—buy back—shares. Instead, like individual stock shares, the fund can only be bought or sold on the secondary market by investors.

Exchanged traded funds 

Exchange traded funds (ETF) combine characteristics of both closed end funds and open end funds . They are structured as open end investment companies or UITs . 

ETFs are traded throughout the day on a stock exchange. An arbitrage mechanism is used to keep the trading price close to net asset value of the ETF holdings . 

Money Market Funds 

  Money market funds invest in money market instruments which are fixed income securities with a very short time to maturity and high credit Quality . investors often use money markets by the government , unlike bank savings accounts. 

In the United states , money market funds sold to retail investors and those investing in government securities may maintain a stable net asset value of the securities held in the funds . 

Bond Funds 

 A bond fund or debt fund is an investment in bonds , or other debt securities . Bond funds can be contrasted with stock funds and money funds . 

Bond funds typically pay periodic dividends that include interest payments on the funds underlying securities plus periodic realized capital appreciation .

 Bond funds typically pay higher dividends than CD and money market accounts . Most bond funds pay out dividends more frequently than individual bonds . 

TYPES OF BONDED FUNDS 

Government 

Government bonds are considered safest, since a government can always "print more money" to pay its debt. In the United States, these are United States Treasury securities or Treasurys. Due to the safety, the yields are typically low.

Agency 

In the United States, these are bonds issued by government agencies such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac), and Federal National Mortgage Association (Fannie Mae).

Municipal

 Bonds issued by state and local governments and agencies are subject to certain tax preferences and are typically exempt from federal taxes. In some cases, these bonds are even exempt from state or local taxes.

Corporate 

Bonds are issued by corporations. All corporate bonds are guaranteed by the borrowing (issuing) company, and the risk depends on the company's ability to pay the loan at maturity. Some bond funds specialize in high-yield securities (junk bonds), which are corporate bonds carrying a higher risk, due to the potential inability of the issuer to repay the bond. 

Bond funds specialising in junk bonds – also known as "below investment-grade bonds" – pay higher dividends than other bond funds, with the dividend return correlating approximately with the risk.

Credit Rating 

An important property of bond funds is the rating of the bonds they own. Funds may be rated from high to low credit quality. The quality of a fund is the average of the bonds owned by the fund. Funds that pay higher yields typically own lower quality bond .