When choosing a mutual fund, one of the most important things to consider is your investment objective. Mutual funds are classified into the following three categories: income, growth, or growth and income. The following exercises feature examples of three investors, each with one of the stated goals. Complete the paragraphs to illustrate your understanding of each mutual fund category:
1. Quinlynn is a 32-year-old woman with two children who owns her own home and has a substantial retirement account. She recently received an inheritance from her uncle and is looking to invest in a mutual fund aimed at capital appreciation, and thus invests in well-established companies with higher-than-average revenues. She decides to purchase shares.
a. value fund
b. growth fund
c. equity income fund
2. Steve is nearing retirement and is looking to purchase a mutual fund that will provide a relatively safe investment as well as regular income payments. Among mutual funds with an income objective, Steve can either buy shares in , which invest in CDs, government securities, and short-term obligations issued by money market funds bond funds corporations, or he can invest in for a slightly higher current income return and the money market funds bond funds potential for capital appreciation as well. Within the category of bond funds are even more specific options. Steve decides to buy shares in a fund that invests in Treasury issues maturing in more than ten years years, known as termbonds.
a. intermediate
b. short
He is also collecting income from shares he already owns in a bond .
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