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Types of Funds
Stock funds, also called equity funds, invest primarily in the shares of publicly traded companies. Domestic (or U.S.) stock funds invest primarily in companies based in the United States. International stock funds invest primarily in companies based outside the United States. Global stock funds invest in companies based both in the United States and elsewhere around the world.
Most domestic stock funds have more specific investment objectives. Many invest based on companies' market capitalizations — small-cap, mid-cap, or large-cap. (A company's market capitalization is its total stock value.) Large-cap stocks do not normally fluctuate as greatly as small-cap stocks, but also do not normally have as much growth potential.
Most funds also invest according to a particular style, such as "growth" or "value." A growth fund focuses on companies with above-average potential for profit growth, while a value fund looks for companies with stock prices that appear to be a bargain given a company's growth prospects. A "blend" fund tends to take the middle ground between value and growth.
Bond funds invest primarily in fixed-income securities issued by companies and governments. Most bond funds invest in debt instruments of American companies and governments, but international bond funds invest outside the U.S.
In general, a bond fund's investment objective takes into account both maturity, or the length of time until the principal is due on its bonds, and credit quality. Some funds invest in long-term bonds that mature in 10 to 30 years, others invest in intermediate-term bonds that mature in 4 to 10 years, and some invest only in short-term bonds that mature in 1 to 4 years. Most funds invest in government or corporate bonds that are of high credit quality, or "investment-grade." Those that focus on more risky lower-grade bonds are called "high-yield" or "junk" bond funds.
The total return for a bond fund consists of both interest income and price appreciation (or depreciation). Interest income, often expressed in percentage terms as "yield," is the interest paid on the bonds held by the fund. The actual value of the bonds can rise or fall, depending on market conditions. The prices of bonds tend not to fluctuate as greatly as those of stocks.
Other Types of Funds
- Balanced Funds invest in a combination of stocks and bonds.
- Sector Funds are stock funds that focus on a particular economic sector, such as technology or health care.
- Municipal Bond Funds are bond funds that invest in tax-free municipal bonds, which tends to be beneficial to investors in higher tax brackets.
- Money Market Funds are funds that invest in very short-term cash-equivalent securities (not to be confused with Money Market Accounts, which are insured and issued by banks).
What types of mutual funds are the most risky and what types have the highest return?
In general, stock funds tend to be more risky than bond funds, and bond funds tend to be more risky than money market funds. Stock funds have the potential for the highest return over time.
The Domini Funds are not insured and are subject to market risks. Investment return, principal value, and yield will fluctuate so that an investor’s shares when redeemed may be worth more or less than their original cost. You may lose money.
The Domini Social Bond Fund is not insured and is subject to market risks, including interest rate and credit risks. During periods of rising interest rates, bond funds can lose value. The Domini Social Bond Fund currently holds a large percentage of its portfolio in mortgage-backed securities. During periods of falling interest rates, mortgage-backed securities may prepay the principal due, which may lower the Fund’s return by causing it to reinvest at lower interest rates. Some of the Domini Social Bond Fund's community development investments may be unrated and carry greater credit risks than its other investments.
Investing internationally involves special risks, such as currency fluctuations, social and economic instability, differing securities regulations and accounting standards, limited public information, possible changes in taxation, and periods of illiquidity.
The Domini Social Equity Fund, Domini Social Bond Fund, Domini Institutional Social Equity Fund, and Domini International Social Equity Fund are not affiliated with any bank and are not insured by the FDIC. This material must be preceded or accompanied by the Funds’ current prospectus. Please read it carefully before investing or sending money. DSIL Investment Services LLC, Distributor. 05/11