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This information can help you learn about
- The benefits of investing in mutual funds
- Fund types, performance, uses
- Selecting funds based on goals and risk tolerance
- Calvert's family of funds
- Keeping track of fund performance
- Calvert's share types
Many investors choose mutual funds as a convenient way to buy securities. Each mutual fund pools money from both individuals and businesses and invests in a selection of securities that are handpicked to seek each particular fund's objectives. All income received from mutual share purchases is taxed in the year it's received.*
All shareholders of a fund share proportionately in the fund's gains or losses.
The benefits of investing in mutual funds
Mutual funds offer several important benefits to the investor:
- Simplicity and ease Mutual funds are an excellent choice for people without the time, inclination, or expertise to select and monitor individual securities.
- Automatic diversification Each fund invests in many companies or different types of securities, spreading risk rather than "placing all your eggs in one basket" as you do with individual-securities investing.
- Professional investment management Mutual fund managers are experienced, knowledgeable specialists in their field. And, professional investment management is relatively inexpensive with mutual funds.
Investors should understand all fees associated with the fund prior to investing. Mutual funds are required by the Securities and Exchange Commission (SEC) to provide a prospectus, which discusses a fund's objective, fees, and services, as well as other detailed information.
- Simplified record keeping A US stock-mutual-fund owns shares in many companies. So, investing in a typical mutual fund means you receive reporting only from your mutual fund company, not all the companies in which your fund invests.
Fund types, performance, uses
The three broad categories of mutual funds are stock, bond, and money market.
Stock Funds
Stock funds provide the greatest opportunity for growth of your investment capital. With potentially higher returns and a relatively higher level of risk, stock funds are generally used to build up assets over a longer period of time - to save for retirement, build a college fund for a child's tuition, or, for a young investor, simply to obtain the greatest potential for return down the road.
Stock funds invest in ownership shares of companies and corporations and can be categorized according to their investment objectives:
- Growth-and-income funds seek growth of capital with current income, generally by investing in a mix of stocks and bonds or dividend-paying stocks.
- Growth funds aim for growth of capital with moderate risk and typically invest in larger, established companies. Calvert, for example, offers the CSIF Equity Portfolio and the Calvert Large Cap Growth Fund.
- Aggressive-growth funds seek growth of capital with higher levels of risk, usually by investing in smaller, emerging growth companies. Calvert's New Vision Small Cap Fund is an aggressive-growth fund.
You will find other stock-fund categories: small-cap, value, emerging markets, sectors, and others. However, most have one of the above-listed overall investment objectives.
Stock funds generally:
- - Provide the greatest potential for return, most of which comes as capital appreciation.
- - Can provide income through dividends, although most long-term investors reinvest income for greater capital appreciation.
- - Entail more market risk than other types of mutual funds, because stocks are subject to greater market fluctuations.
The range of stock funds available allows you to tailor your investment to your particular needs. Investors with longer time horizons may be willing to take the greater risks - and have greater potential for returns - offered by growth and aggressive-growth funds, whereas those with shorter time frames might prefer funds with less potential for fluctuation.
Calvert offers a unique family of stock funds, including funds analyzed using Calvert's Double Diligence® investment process. Among these are the Calvert Social Investment Fund Balanced and Equity Portfolios, Calvert Social Index Fund, and Calvert World Values International Equity Fund.
For these funds, Calvert digs deeply into a potential investment, examining the company's assets, cash flow, brand leadership, market position, and management strength. In addition, we thoroughly assess a company's corporate integrity across seven broad areas of concern, including the environment and corporate governance. Stocks must pass this double diligence investment process before we invest.
Bond Funds
Bond (or fixed-income) funds generally provide the most reliable source of income from investment capital. Bonds are similar in principle to IOUs: The fund lends money to a bond issuer, who promises to repay the principal plus interest. Bond funds can be categorized according to the term of the bonds in which they invest: short- (one to three years), intermediate- (three to ten years), and long-term (ten years and over) funds.
Bond Funds
- Generally occupy the middle ground of the risk-return spectrum: moderate potential for returns with moderate potential for risk. Shorter-term funds generally involve lower potential for risk and for returns, while longer-term funds have a greater potential for both return and risk.
- Tend to perform in between money market funds and stock funds, delivering returns that outpace inflation but are not as strong as stock fund returns over a long period of time. However, over shorter time periods (and depending on market conditions), bond funds can provide performance that is equal to that of some stock funds.
Calvert was established as a fixed-income fund company and continues to be an industry leader in fixed income. The Calvert Income Fund is one example.
As with stock funds, there are many different types of bond funds -- those that invest in corporate bonds, government bonds, international bonds, high-yield bonds, and so forth. One type of bond fund that attracts many investors is the tax-free bond fund, which provides income not subject to ordinary federal income taxes for most investors (investors subject to the federal Alternative Minimum Tax should consult their tax advisor before deciding on a tax-free fund).
Calvert offers a wide variety of corporate bond funds, municipal bond funds, and tax-free funds, including some funds that are free from both federal and state taxes for residents of certain states.
Money Market Funds
Money market funds are generally used as "safe harbors" for investors who want to receive some income without incurring substantial risk. In addition, investors use money market funds to hold money for emergencies, for anticipated expenses, or for future investment.
- Money market funds entail relatively low risk, with little, if any, fluctuation in price. In fact, most money market funds are managed to maintain a stable share price of one dollar, making them somewhat similar to a passbook savings account at your local bank, although they generally provide somewhat better returns.
- Money market funds are not insured or guaranteed by the US government, while bank products may be insured. There can be no assurance that a fund will be able to maintain a stable net asset value of $1.00 per share.
- Investors should expect relatively lower returns than those from either stock or bond funds. Virtually all the return is in the form of current income from the interest earned on the money market securities in which the fund invests.
- Historically, money market funds have provided returns slightly ahead of inflation.
While all money market funds invest in similar securities -- short-term investments that tend to have little price fluctuation -- there are different types of money market funds. Calvert, for example, offers tax-free money market funds**, which provide income free of ordinary federal income taxes. Calvert also offers a money market fund managed using our "double diligence" analysis.
Selecting funds based on goals and risk tolerance
Before you begin talking with your financial advisor about which mutual funds might be appropriate for you, understand how your time horizon and risk tolerance might dictate which types of funds to consider.
For example, the risk/ return chart shows how various types of mutual funds balance market risk and the potential for investment return:
Calvert's family of funds
Calvert offers funds that span the risk/return spectrum and provide investment opportunities for virtually every savings goal.
Keeping track of fund performance
Most stocks and mutual funds are quoted in the financial sections of daily newspapers, giving investors a quick and easy way to follow the progress of their investments. Mutual fund share prices are set at net asset value (NAV) at the close of each business day. The offering price is the fund's net asset value plus any sales charges. Purchased shares are redeemed at NAV, less redemption fees, if any. Total return is an important indicator of the fund's historical performance; however, it's not a guarantee of future performance.
Calvert's share types
Calvert offers three share classes that apply fund sales charges according to different schedules: Class A or front-end load shares; Class B, or back-end load shares; and Class C, or level-load shares. In addition to the sales charges paid to financial advisors, fund management fees and expenses differ for each share class. The share class best suited to your needs will depend on your time horizon and the amount you invest.
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