Mutual funds is one of the most popular ways for people to become involved in casual investing because it requires limited time and knowledge to start. Mutual funds collect money from a variety of investors (including individuals and corporations) and invests the collective funds into various investment options including stocks and bonds. A mutual fund works as a middleman between an individual investor and the investments they are making and mutual fund managers usually have a direct hand in the day-to-day dealings with the fund instead of the individual investors themselves.

The types of investments each mutual fund can become a part of is outlined in the investment objectives of the fund and vary greatly depending on the purpose of the fund. However, there are three types of mutual funds that are common. They are money market funds, bond funds and equity funds (also known as stock funds). Each has its own advantages and disadvantages.

For instance, money market funds are considered to be relatively low risk and deal with short-term debt funds. Because of the low risk and the short-term nature of money market accounts, the return is not likely to be as good as other investments, but money market account will almost never lose their principals. Bond funds invest in government and corporate bonds and work to earn a steady income for investors. Equity funds are considered long-term investments and have all the risks associated with the long term, but also have the chance to make the most amount of money for the investor.

Despite the different types of mutual funds that an investor can choose from, many mutual funds offer similar amenities. These include Systematic Investment Plans (SIPs), Systematic Withdrawal Plans (SWPs), dividend reinvestment choices, and a couple ways to access monthly income. No matter what type of mutual fund you’re interested in, be sure to understand the risks, how you’ll make your money and when you’ll have access to it.