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Money Market Funds: Government Bonds

The document describes different types of mutual funds including money market funds, fixed income funds, equity funds, balanced funds, index funds, specialty funds, and fund-of-funds. It provides details on what each fund invests in, their objectives and levels of risk. For example, it states that money market funds invest in short-term fixed income securities and aim for capital preservation, while equity funds invest in stocks and aim for growth but carry higher risk of losses. The document also discusses active vs passive management and different approaches to investing such as top-down, bottom-up, and technical analysis.

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KRUPALI RAIYANI
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50 views5 pages

Money Market Funds: Government Bonds

The document describes different types of mutual funds including money market funds, fixed income funds, equity funds, balanced funds, index funds, specialty funds, and fund-of-funds. It provides details on what each fund invests in, their objectives and levels of risk. For example, it states that money market funds invest in short-term fixed income securities and aim for capital preservation, while equity funds invest in stocks and aim for growth but carry higher risk of losses. The document also discusses active vs passive management and different approaches to investing such as top-down, bottom-up, and technical analysis.

Uploaded by

KRUPALI RAIYANI
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

Money market funds


These funds invest in short-term fixed income
securities such as government bonds,
treasury bills, bankers’ acceptances,
commercial paper and certificates of deposit.
They are generally a safer investment, but
with a lower potential return then other types
of mutual funds. Canadian money market
funds try to keep their net asset value
(NAV) stable at $10 per security.

2. Fixed income funds


These funds buy investments that pay a fixed
rate of return like government bonds,
investment-grade corporate bonds and high-
yield corporate bonds. They aim to have
money coming into the fund on a regular
basis, mostly through interest that the fund
earns. High-yield corporate bond funds are
generally riskier than funds that hold
government and investment-grade bonds.

3. Equity funds
These funds invest in stocks. These funds
aim to grow faster than money market or fixed
income funds, so there is usually a higher risk
that you could lose money. You can choose
from different types of equity funds including
those that specialize in growth stocks (which
don’t usually pay dividends), income funds
(which hold stocks that pay large dividends),
value stocks, large-cap stocks, mid-cap
stocks, small-cap stocks, or combinations of
these.

4. Balanced funds
These funds invest in a mix of equities and
fixed income securities. They try to balance
the aim of achieving higher returns against
the risk of losing money. Most of these funds
follow a formula to split money among the
different types of investments. They tend to
have more risk than fixed income funds, but
less risk than pure equity funds. Aggressive
funds hold more equities and fewer bonds,
while conservative funds hold fewer equities
relative to bonds.
5. Index funds
These funds aim to track the performance of
a specific index such as the S&P/TSX
Composite Index. The value of the mutual
fund will go up or down as the index goes up
or down. Index funds typically have lower
costs than actively managed mutual funds
because the portfolio manager doesn’t have
to do as much research or make as many
investment decisions.
ACTIVE VS PASSIVE MANAGEMENT
Active management means that the portfolio manager
buys and sells investments, attempting to outperform
the return of the overall market or another identified
benchmark. Passive management involves buying a
portfolio of securities designed to track the
performance of a benchmark index. The fund’s
holdings are only adjusted if there is an adjustment in
the components of the index.

6. Specialty funds
These funds focus on specialized mandates
such as real estate, commodities or socially
responsible investing. For example, a socially
responsible fund may invest in companies
that support environmental stewardship,
human rights and diversity, and may avoid
companies involved in alcohol, tobacco,
gambling, weapons and the military.

7. Fund-of-funds
These funds invest in other funds. Similar to
balanced funds, they try to make asset
allocation and diversification easier for the
investor. The MER for fund-of-funds tend to
be higher than stand-alone mutual funds.
Before you invest, understand the fund’s investment
goals and make sure you are comfortable with the
level of risk. Even if two funds are of the same type,
their risk and return characteristics may not be
identical. Learn more about how mutual funds
work. You may also want to speak with a financial
advisor to help you decide which types of funds best
meet your needs.

4 common approaches to investing


1. Top-down approach – looks at the big
economic picture, and then finds industries or
countries that look like they are going to do
well. Then invest in specific companies within
the chosen industry or country.
2. Bottom-up approach – focuses on selecting
specific companies that are doing well, no
matter what the prospects are for their industry
or the economy.
3. A combination of top-down and bottom-up
approaches – A portfolio manager managing a
global portfolio can decide which countries to
favour based on a top-down analysis but build
the portfolio of stocks within each country based
on a bottom-up analysis.
4. Technical analysis – attempts to forecast the
direction of investment prices by studying past
market data.

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