Similar to by-laws in a particular organization, a prospectus is designed for each mutual fund. The prospectus essentially incorporates the group preferences of the investors. The investment calculator employed in the mutual fund may also need to abide by a calculator prospectus. The mutual fund manager can also have a better idea of how to deal with the fund, with the prospectus.

There are, in general, three ways for a mutual fund to earn money and this includes:
1. Income received through stock dividends and bond interests. Incomes acquired by a fund are returned to the fund owners on an annual basis, normally in the form of distribution.
2. Funds that have sold securities that have improved in prices will acquire capital gains. In most situations, the investors will also get these gains back during distribution.
3. The worth of the fund is directly symmetrical to the worth of shares. So if fund worth increases, share worth will also increase. These shares can be sold for a profit by the shareholder if the fund manager doesn't sell them.

During distribution, the investor is given the freedom to pick what to do with the profit. It can either be withdrawn or reinvested for more shares.

Now that I have spent a good number of words on mutual funds definition, that should bring you back up to speed on mutual funds. So let's move on to the general types of mutual funds.

Seeing the fact that each person has a distinctive economic situation and that there are billions of people in this world, the need for numerous types of mutual funds is tremendously noticeable. The equity funds, fixed-income funds, and money market funds are the general types of mutual funds. Here are some simple descriptions of the three.

Equity Funds
The most unstable mutual fund type, equity funds are also known as stock funds. While their worth can quickly surge and drop over a short time, equity funds have demonstrated wonderful performance in the long run in the past. Equity funds are normally risky because it is invested in stocks. Stock movements are determined by investor evaluation of economic conditions and their impact on corporate profits. Besides these two, experience of penalties, lawsuits from economy pollution, and employee discrimination can also have an impact on stock volatility. Incidentally, a stocks calculator is crucial for performing numerous stock fund calculations.

In spite of its unpredictability, it is a popular type of mutual fund, invested in by many individuals. Growth funds, income funds, index funds, and sector funds are sub-types of the equity funds.

Without routine dividend distribution, the growth fund allow for higher capital appreciation. The income fund is mutual funds that pay routine dividends. Index funds reflect the market index performance. Finally, sector fund focuses in a specific industry sector.

Fixed-Income Funds
Income is obtained in fixed-income funds, also known as bond funds, through dividend payments. Normally, corporate and government debts are places where bond funds are invested in.

As stock funds drop value, a bond fund investor's overall yield improves and can obtain steady income.

Just like stock funds, there are several versions of bond funds, which vary from the low risk government treasury bonds to the risky, high yield junk bonds that have lower credit rating than investment-grade corporate bonds. Don't forget about more reliable immediate annuity, pros and cons of immediate annuities.