is a popular type of mutual fund. However, it is often confused with a similar investment known as the balanced fund. Here are the basics of the blend fund and the balanced fund and what the differences between the two are.
A blend fund tries to give investors a nicely diversified mix of securities. However, the blend fund invests only in different types of stocks. Therefore, you will be totally exposed to the stock market with this type of fund. The blend fund will utilize a mix of growth stocks and value stocks.
The fund will conduct a great deal of research in order to try to identify stocks that are growing rapidly. They will look at sales numbers in order to try to see multiple quarters of exceeded projections. When a company has beaten their projections in consecutive quarters, this often signals even further future growth. Therefore, by purchasing the stocks, they can provide superior capital appreciation for the fund.
The fund will also go to great lengths in order to identify stocks that are undervalued. They will purchase these stocks in an attempt to take advantage of inefficient pricing. Then when the price of the stock gets back to where it should be, the fund will be able to realize a profit.
The balanced fund also aims to provide a very diversified mix of investments for their shareholders. However, this fund is not limited to investing only in stocks. They will invest a good portion of their money into stocks, but they will also invest in fixed income securities, such as corporate bonds. They will also typically put some of their money into the money market. Much of the success of this type of fund depends on how the fund manager allocates their resources. For example, they can decide to reallocate funds depending on how the market is performing. If the stock market is plummeting, they can liquidate their shares in the market and use the money to purchase more bonds. If the market is performing well, they will devote more resources to it. These funds will utilize an investment strategy that is designed to govern their investment decisions. However, the fund managers can use their own discretion when choosing securities.
The main difference between these types of funds is in the objective that they are trying to accomplish. With the blend fund, the main objective is to try to grow the overall value of the portfolio. Investors that choose this type of investment value capital appreciation more than anything else. With the balanced fund, investors like a more diversified type of investment. They will be able to realize capital appreciation as well as bring in a regular monthly income through the bond investments.
The blend fund will also tend to be more actively managed than the balanced fund. They are continually trying to identify potential growth and value stocks, which takes a lot of research.
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