Others invest in young firms or companies that have been operating below expectation for several years. Like individual investors, funds may buy blue chip stocks for income and safety, growth stocks for future gains, value stocks for stability and growth, and cyclical stocks to take advantage of economic booms. The major difference in buying a fund rather than individual stocks is the diversity you can achieve with the same amount of money. There are several different types of stock funds. A key distinction among them is that some stress growth, some income, and some a combination of the two.
Some funds involve more risk to capital than others because they buy stock in emerging companies.
The profits on all stock fund distributions are taxable, but no tax is due on the increased value of a fund until you sell it. Unlike bonds, however, these funds have no maturity date and no guaranteed repayment of the amount you invest. On the plus side, though, you can automatically reinvest your dividends to buy more shares. Bond funds come in many varieties, with different investment goals and strategies. There are investment grade corporate bond funds and riskier junk bonds often sold under the promising label of high-yield funds .