Mutual funds have been actively traded in the United States since 1924, and in Europe as far back as the 1800s. However the emense number and tremendous diversity of mutual funds found today stems from a suden surge in popularity in the 1980s caused by companies abandoning traditional pension plans and, as a result, more Americans becomong responsible for planning their own retirement funds. The Investment Company Institute, the mutual fund trade organization, was founded in 1940 with 68 funds worth a total of $2.1 billion. At the beginning of 2007 there were approximately 9000 mutual funds worth over $6 trillion.

With the new abundance of mutual funds and the number of Americans responsible for planning their own retirement income continuing to increase, it seems particularly important for anyone thinking about investing in a mutual fund to be well informed of the kinds of mutual funds that currently exist and of what exactly they are.

(1) Equity Funds

Equity funds, commonly referred to as stock funds, are the most common type of mutual funds. Stock funds invest entirely in stocks. Many types of stock fund exist. Stock fund subspecies include the following:

1. Aggressive growth funds are mutual funds that aim for the highest-capital gains and are not risk-averse in their choice of investments. They typically invest in small companies that appear poised for growth.
2. Growth funds aim to gain financial appreciation by investing in growth stocks; they primarily invest in large companies that are well-established.
3. Sector funds do what their name implies; these funds invest only in companies within a certain segment, or sector of the economy. Saratoga Health and Biotechnology I (SBHIX), for instance, invests only in stocks issued by companies in the health care and biotechnology sectors.  Similarly, Vice Fund (VICEX) is a Dallas-based equity fund that invests strictly in gambling, alcohol, tobacco and defense, and other sinful stocks. Whatever sector you're considering investing in, chances are that there already exist numerous fund that invest just in that sector of the economy.
4. Growth and Income Funds aim to achieve both growth and income, primarily through investments in companies with large growth potential and a strong record of regular dividend payouts.
5. Income-equity funds are more concerned with dividend income, and less concerned with growth.
6. Emerging market funds invest primarily in developing countries.
7. Regional equity funds invest strictly in shares offered by companies located in a certain part of the world.
8. Global equity funds invest in equity securities traded internationally, including those of companies operating out of the United States.
   

(2) Index Funds

an Index fund is a stock fund that attepts to mirror the performace of various stock market indexes, such as the S&P 500, Dow Jones Industrial or NASDAQ.  Because portfolio decisions or index funds are made automatically by computers, rather than manually, and are infrequent, management funds are typically lower than those of actively managed mutual funds.

(3) Bond Funds

Bond funds invest in bonds issued by large corporations and government institutions.  Investers often seek out bond funds as a more conservative investment that will generate a steadier return than stock funds.  The term 'bond funds' encompasses two subspecies: tax-free, or municiple bond funds and taxable bond funds.

(4) Hybrid Funds

A hybrid fund is a category of mutual fund thats portfolio is comprised of a combination of stocks and bonds.  A hybrid fund's proportion of stocks to bonds may vary overtime or remain fixed.  Hybrid funds are now commonly divided into domestic hybrid funds and international hybrid funds.

(5) Money Market Funds

Money market funds, also refered to as money funds, are mutual funds that invest in short-term debt instruments.  Money market mutual funds are required by law to invest in low-risk and highly liquid securities, such as government issued securities and commercial paper of companies.  These funds are relatively low risk investments compared to other mutual funds and issue divident payouts that roughly reflect short-term interest rates.

(6) Exchange-Traded Funds

Exchange-traded funds, commonly called ETFs, are mutual funds traded on stock exchanges much like stocks.  ETFs hold assets such as stocks and bonds and trade approximately inline with the net asset value of the underlying assets over the course of the trading day