Low-risk mutual funds, including money market, bond, and balanced funds, can provide investors with a variety of investment options. These funds can be load or no-load and offer different levels of risk and return. Exchange-traded funds (ETFs) can also serve as an alternative to low-risk mutual funds.
The investor considering low-risk mutual funds will find a great selection to choose from. Money market mutual funds are a low risk investment with a corresponding low return. Bond funds are available providing different levels of risk. Government bond funds are considered safe, but rising interest rates tend to deflate bond prices. Balanced funds can be designed to mitigate risk while providing an income.
Mutual funds are designed to meet specific investment objectives. If risk mitigation is a priority, many different types of low-risk mutual funds can achieve this goal. Some are designed with multiple strategies, such as risk mitigation, along with a monthly or quarterly income. Exploring the wide range of mutual funds available will discover the right type for a particular need.
Low-risk mutual funds can be load or no-load funds. The charge refers to the expenses associated with the fund; They can be front loads, which are paid when the fund is purchased, or deferred loads, which are paid when the fund is sold. Expenses can take a large percentage of profits or add to losses. No-load funds are available in all mutual fund categories.
A money market fund is required by United States law to invest in low-risk securities. They typically invest in government securities and certificates of deposit. These low-risk mutual funds pay dividends comparable to short-term interest rates. Money market funds are not federally insured.
Bond fund categories include treasury, mortgage, corporate and municipal. Treasury securities are the safest but produce the lowest returns. Corporate bonds are guaranteed by the issuing corporation. Default risk depends on the company’s ability to repay the loan when due. Municipal bonds are subject to certain tax credits and may be exempt from federal income tax. Mutual funds can be diversified into these categories.
Some balanced funds may be considered low-risk mutual funds. A balanced fund combines investments in stocks, bonds, and low-risk securities. A conservative balanced fund may be geared toward a higher percentage of fixed income investments. Balanced funds are sometimes called hybrid funds.
Low-risk exchange-traded funds (ETFs) can serve as an alternative investment to low-risk mutual funds. There are no management fees incurred with most ETFs. Treasury and municipal bond ETFs are very similar to mutual funds and fairly easy to trade. Unlike mutual funds, ETFs only incur capital gains tax when the fund is sold. The ETF universe is expanding to accommodate a myriad of investment objectives.
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