Mutual Fund Categories
What are the main types of funds?
The ScotiaFunds line-up includes a broad range of funds that fall into five main categories - cash equivalent, income, balanced, equity, and index funds.
These funds are likely to add stability to your portfolio by investing in relatively safe and short-term investments, such as treasury bills and other money market instruments. They are a good choice for short-term investment goals or as an alternative to a savings account or other short-term investment.
These funds give you potential for higher interest and income. They invest in high-quality bonds, mortgages, and dividend-paying shares. Income funds are a good choice if you want higher income in the mid- to long-term and can accept the possibility of declines in the value of your investment over the short-term, as they are more sensitive to changes in interest rates than cash equivalent funds.
These funds offer you a combination of equity, income-oriented investments, and cash equivalent securities in a single investment. If you prefer a simple, straightforward investment choice, a balanced fund can be considered a complete portfolio. Generally, balanced funds provide more stable returns than equity funds, but are more risky than income funds.
Funds that invest in the stock markets of Canada, the U.S., and countries around the world offer the greatest potential for long-term growth by investing in common shares and other equity securities. They're a good choice if you're planning to invest for the long term, don't need regular income, and can accept the possibility of declines in the value of your investment.
An index fund is a passive fund that replicates a market index, a basket of stocks or securities that is used as a benchmark, such as the S&P/TSX Composite Index or the S&P 500 Index. Bond index funds generally provide more stable returns than index funds, and broadly diversified index funds are usually less risky than funds that focus on a narrowly defined market index.