What Is a Core Mutual Fund?

A mutual fund is a collection of stocks designed help investors make a balanced investment that will increase their profits in the best way possible. Mutual funds are managed by brokers or fund managers that make choices regarding specific stocks and companies in which to invest. Mutual funds tend to have a focus, such as a specific global area and different kinds of companies in which the fund will or will not invest. A core mutual fund is an important part of any portfolio.

A core mutual fund is a fund that is devoted to providing very safe stock investments for investors. These funds are designed to profit primarily from dependable dividends from organizations that have a long history and are stable enough to avoid any major changes in the future. They are called core funds because they represent a good base for an investor portfolio, a safety zone that is always dependable no matter what stocks are bought and sold on the periphery of the portfolio.

Core mutual funds trade in risk for security. They have very low risk, but their profits are equally low compared to other types of fund investment. The core funds an investor chooses to have depends on his strategy. Aggressive investors will be more interested in stocks that show rapid increases in value, and will be less interested in investing in core funds. Those who care more about managing risk will prefer heavy investment in core funds.

Core funds represent large-cap companies. These are corporations that represent the greatest net worth on the stock market and can be depended on for returns in the coming years. Because of their security, large-cap companies have stocks with high values, which costs more to invest in than risky companies. These companies also offer steady, sizable dividends over the long term. Corporations can lose money and eventually fall from large-cap status, just as newer companies can gain enough trust and holdings to become large-cap, changing investment options for core funds.

Core mutual funds can adopt several different strategies based on management perspective. Some may simply invest in blends, or large-cap companies that have average stock prices. Others may prefer large-value funds — funds that invest in large-cap companies that have the cheapest stocks — although this carries a greater risk that the companies may continue to lose value.