Funds will either invest in growth stocks or income stocks. Income stocks tend to pay dividends to their stockholders. Mun said that this fund is for those who are more conservative, because investors receive checks showing exactly how much they earn. The other option is funds that invest in growth stocks. Mun said these funds can be riskier because they are based on the capital gains that the fund manager creates by buying stocks at a low price and selling at a higher price.
Bond funds invest in bonds, which act as loans to a company.
The fund gains money when the company pays back the loan with a fixed rate of interest on the loan, called the coupon rate. The interest is usually paid monthly or quarterly. The only exceptions are zero coupon bonds. These bonds pay all of the interest at the end of the bond's term. Kobliner states this type of fund is usually less risky than a stock fund and more risky than a money market fund.