Three words are commonly used to describe the objectives of mutual funds: growth (also known as capital appreciation), income, and preservation of capital. Investors should always read about a mutual fund’s objective in its prospectus to make sure that it is a good fit with their personal investment objectives.
Mutual funds with a growth objective hold a portfolio of company stocks with an expectation that they will grow in value over time.
Funds with an income objective select securities such as bonds and preferred stock that can provide regular income payments.
With a preservation of capital objective, it is important that an investor’s initial investment does not lose value. Funds with this objective (e.g., money market mutual funds) generally hold very short-term cash equivalent assets.
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