Mutual funds are different from certificates in that they pay only a dividend. The principal is reinvested back into the fund. This causes daily fluctuation of the market value of shares. The value of these funds falls when interest rates drop because homeowners refinance their mortgages. The principal received by the fund must then be reinvested at a lower rate, which causes the value of the fund to fall.
Funds containing mortgaged-backed securities are available in many varieties.
Some contain all Ginnie Maes and others a combination of the three. Still other funds contain a combination of mortgage-backed securities and Treasury securities. Managers of combination funds are better able to manage the risk of falling and rising interest rates. It is not always possible to tell by the name of the fund what the fund invests in. Therefore, read the prospectus carefully to know the kinds of securities the fund is investing in and the characteristics of the fund.