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Mutual funds are classed according to their investment objectives.

Money-market mutual funds, which many investors look upon as an alternative to a bank account, seek complete safety of capital in short-term investments. These class of mutual fund yields vary, being loosely linked with the interest rate paid on Treasury bills. There is a rapid flow of cash into and out of money-market mutual funds.

Agrressive Growth Mutual Funds, the  aggressive growth mutual funds seek high returns by investing in promising but speculative securities. These class of mutual funds entail greater risk than standard growth mutual funds, which tend to invest in larger, more financially secure companies with records of steadily increasing earnings.

Growth-and-income mutual funds attempt to achieve a balance between money-market class of mutual funds and the standard growth mutual funds. Among mutual funds that seek stability and safety, some may invest in high-quality bonds, others in blue-chip stocks, and still others in federal securities, which are backed by the full faith and credit of the U.S. government. Mutual funds that aim for current income may be speculative, investing in high-yield, high-risk securities such as junk bonds, or conservative in outlook, investing in low-risk securities with a good record of paying dividends. Between the extremes are mutual funds that are willing to take some risk for higher returns but are mindful of the need to conserve capital. In general, younger investors, with most of their earning power ahead of them, can tolerate more risk than investors who are close to retirement.

Balanced Mutual funds, seeking both growth and income, may invest in stocks, bonds, and other financial instruments. Sector mutual funds put all their mutual fund investment in corporations in one area of business, such as the automobile industry, or in one country or region of the world. International stock funds and bond funds, gold and precious metals funds, and municipal bond funds are among the dozens of other categories and subcategories. In contrast to the extreme specialization offered by some mutual funds, there are fully managed mutual funds, which are free by company policy to alter the composition of the portfolio according to the management's evaluation of the current market. Another approach is offered by index mutual funds, which do not attempt to outguess the markets but simply structure their mutual fund portfolios to duplicate one of the major stock market indexes, such as the Standard and Poor's index of 500 leading stocks.