A mutual fund is typically fashioned by an investment firm. The whole thing is publicized and the share holders are then encouraged to put their money in this mutual fund.

Stock Funds

Objective of this fund is capital growth. Invests in shares of various companies that trade on exchanges. This entails higher risk as fund performance is directly tied to stocks in the portfolio, even though returns are higher. There is countless number of variants of stock funds.
  • Index funds - These funds invest in shares of index companies. They Can be highly volatile. Index companies are those that determine the index of the stock market (example: companies such as those contained by S&P 500 index).
  • Sector funds - Invests in shares of specialty sectors such as real estate companies, banking companies, auto makers etc. The growth of fund does not depend on the overall economic growth but on the performance of a specific sector.
  • Hybrid funds - These types of funds invest in both stocks and bonds. The objective is obviously to seize the stability of bond market and the growth potential of stock markets. Relatively low risk profile depending on extent of diversification of fund allocation. Hybrid funds are also called as balanced mutual funds.

Are These Kid's Mutual Funds Advisable?

You may say if other funds are advisable then why not this? Mutual funds for kids are relatively new. The industry is yet to mature as investment avenues. Standard and Poor (S&P) in its last report says most mutual funds have not lived up to their tall claims. When it was examined in the early 2005, it was found that the funds have failed and slipped by 3.6% year-to-date as opposed to 0.92% for S&P 500 over the same period. This is for the second consecutive year that they are falling behind.

Columbia Young Investor Fund/Z (SRYIX) had to even pay up settlement charges of $675 million when faced with allegations of mishandling funds. Not withstanding this, generally, funds aiming to teach investment to children have done a poor show over the review period.

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