By law, each mutual fund must declare an investment objective, such as aggressive growth, growth and income, global equities, global bonds, municipal bonds, corporate bonds, and so forth. This tells the investor what the fund concentrates on and allows the investor to integrate a particular fund with his or her own needs.

As an example, an investor may not want to hold 100 percent stocks as her portfolio, and adding a bond fund with, say, 25 percent of investable funds would provide an overall position of 75 percent stocks and 25 percent bonds. Such asset allocation is extremely important to the ultimate success of an investor, and can be effectively accomplished with the use of mutual funds.

The Investment Company Institute (ICI) is the national association for the investment company industry, representing virtually all mutual fund companies, most closed-end funds, and some unit investment trusts. It represents its members in such matters as legislation, taxation, and regulation. The ICI classifies funds into 33 investment objective categories. Among these, major categories include the following:

• Capital appreciation funds

• Total return funds

• World equity funds

• Hybrid funds

• Taxable bond funds

• Tax-free bond funds

• Money market funds

Each of these major categories is broken down into subcategories to add up to the 33 categories. For example, the taxable bond fund category is broken down into corporate bond funds, high-yield funds, world bond funds, government bond funds, and strategic income funds.