Trying to decide between mutual funds can be difficult. A mutual fund’s name can sometimes—although not always—give you valuable information to help you make a decision. Here are the basics of deciphering a mutual fund’s name and whether you should rely on what you glean from the name when making a decision.

Mutual Fund Names

The name of a mutual fund can tell you a lot about the fund itself and its investment strategy. Each mutual fund name will typically start with the name of the company that issues it and then give some indication of what type of fund it is. For example, let’s say that there was a fund called the Acme Small-Cap Fund. This tells you that the mutual fund is offered by the investment company called Acme. It also tells you that this is a small-cap fund, which means that Acme is investing in smaller corporations that have a larger potential for growth. Traditionally, this type of fund would be designed to help grow a portfolio and could be considered more volatile than other types of funds. After looking at the name of a mutual fund, you will definitely want to do more research about the fund. However, quickly scanning through mutual fund names can help you identify funds that may meet your investment criteria.

Large-Cap Funds

In addition to small-cap funds, large-cap funds are another very popular type of mutual fund. When you see this at the end of a mutual fund name, you should know that the mutual fund will invest in very large companies. These are the biggest companies in the industry, and they are very well-established in their market. This type of fund may not value growth as much as creating a regular source of income through dividends.

Balanced Fund

When a mutual fund claims to be a balanced fund, the fund is attempting to diversify its holdings across several different forms of investment. This type of fund will traditionally invest in stocks, bonds and other types of investments. They will also typically have a certain amount of cash on hand in the portfolio. This type of fund is designed to provide consistent capital appreciation and create some sort of regular income for the investors.

Misleading Names

As an investor, you want to make sure that you do a substantial amount of research on each fund. The name of the fund will not always tell you exactly what you need to know about it. Some mutual fund names are very confusing and do not offer any real insight into what they are trying to accomplish. Some companies will actually rebrand their mutual funds periodically in order to get away from bad performance. For example, if a fund previously had the word aggressive in the title, the company might drop that word in order to make the fund seem safer. In reality, the company could be keeping all the same investment strategies and changing only the name itself. This means that you cannot always believe what the name tells you when investing.

$7 Online Trading. Fast executions. Only at Scottrade