Mutual Fund Investment Objectives

What are investment objectives?

There are many ways to try to make money from investments. You might take on additional risk to try to profit from potential growth in the value of stock shares. Or, you might be a retiree, who prefers an investment whose chief benefit is the periodic income payments it offers. If your priority is to preserve the value of your original investment, you might not be concerned about a limited increase in value.

Mutual funds and stock funds are managed based on a specific investment objective. That objective will determine the fund’s role in your investment portfolio and how it fits into your overall investing strategy. Your objective can determine the types of stocks that your fund's manager purchases. Funds can be broadly based, investing in both large- and small-cap companies in many different industries. Or, a fund may have a much narrower focus, concentrating only on blue chips, for example, or stocks in a single industry.

Typically, a stock mutual fund's objective will be either capital appreciation, income from equities, or both. For example, a stock fund might have both growth and income as objectives, or its primary objective might be capital appreciation, with income as a secondary objective.

A mutual fund's investment objective is not necessarily the same thing as its investing style, although the two may overlap. In addition to pursuing a fund's investment objective, a fund manager may adhere to a particular investing style. For example, a growth fund focuses on stocks that are growing quickly and that seem to have greater than average potential for appreciation in share price. By contrast, a value-oriented fund buys stocks that appear to be undervalued by the market relative to the company's intrinsic worth. Each may have growth as its investment objective, but they pursue growth in different ways. Some managers even blend the two approaches.

Like most mutual funds, a stock fund may be either passively managed, as an index fund is, or actively managed. It also may be an open-end or closed-end fund. Before investing in any fund, carefully consider its investment objectives, risks, fees, and expenses. Read the fund prospectus before investing.