Types of Mutual Funds

Mutual funds are divided into two categories: closed-end and open-end.

Closed-end funds have a limited number of shares. If you want to purchase a piece of the fund, you have to purchase an existing share.

Open-end funds have an unlimited number of shares. If you want to purchase a piece of the fund, the fund creates a new share and sells it to you. There are significantly more open-end funds than there are closed-end funds.

Now that you know what types of mutual funds are available, how are those mutual funds classified?

Mutual-fund Classification

Mutual funds are classified by various groups and institutions, but Morningstar is the industry standard when it comes to mutual-fund classification. Morningstar has two classification systems: the Morningstar Style BoxTM and Morningstar Categories.

The Morningstar Style BoxTM is a 3×3 grid that categorizes equity-based mutual funds by the style and size of the equities they hold and fixed-income mutual funds by the duration and quality of the fixed-income instruments they hold.

Morningstar also classifies mutual funds according to the following 48 predetermined categories based on the assets held by the fund:

Diversified Emerging Markets
Diversified Foreign
Diversified World
Europe
General Intermediate-Term
General Long-Term
General Short-Term
General Ultrashort-Term
Government Intermediate-Term
Government Long-Term
Government Short-Term
International Hybrid
Japan
Large Blend
Large Growth
Large Value
Latin America
Mid Blend
Mid Growth
Mid Value
Muni California Intermediate-Term
Muni California Long-Term
Muni National Intermediate-Term
Muni National Long-Term
Muni New York Intermediate-Term
Muni New York Long-Term
Muni Short-Term
Muni Single State Intermediate-Term
Muni Single State Long-Term
Pacific/Asia
Pacific/Asia (ex Japan)
Small Blend
Small Growth
Small Value
Specialty Precious Metals
Specialty Communications
Specialty Emerging Markets Bond
Specialty Financial
Specialty Health
Specialty High-Yield
Specialty International Bond
Specialty Multisector
Specialty Natural Resources
Specialty Real Estate
Specialty Technology
Specialty Utilities
U.S. Hybrid

Now that you know how mutual funds are classified, how can you measure a mutual fund’s performance?

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