Definition of Fund category
Fund category is simply means categorizing the mutual funds according to their principal objectives and investment features.
It can be defined as the range and type of securities that are held by the fund in its portfolio. Some provide higher risk with higher return, some with early maturity, and some with liquidity options.
Brief Explanation of Fund category
This helps investors spread their money in funds according to their risk tolerance and investment size.
- Stocks are categorized by investment size, growth style and speed, large cap, medium cap or small cap etc.
- Bonds are categorized mainly by their length of maturity, it is divided into short, medium and long term investments with fast liquidity options.
- There is one blended category which combined the features of both stocks and bonds category. They are called hybrid category.
- Guilt funds are those who purely invest in Government securities.
Categorizing funds help the comparisons easy. It helps you compare apple to apple and evaluate performance.