Mutual funds come in all sizes, shapes, sectors and most colours.

Cafeteria style, there is just about something for everyone. There are mutual funds that only buy large cap stocks, split into growth stocks or value stocks. There are funds holding only smaller capitalised companies (under $1 billion, that's right, just a mere billion) including most of the Internet and high-tech companies.

There are funds that buy only IPO stock (Initial Public Offerings) and have returned in some cases 200-400 percent more than the average fund or gone out of business! There are sector funds by kinds of products (drugs, financials); funds of various country stocks (non-US), funds of bonds, index funds and even socially responsible funds. That means no tobacco companies, oil-drillers or chemical companies for instance, emphasis on environmentally pure! In the United States market alone there are more than 11,000 mutual funds, offshore about 35,000 more to choose from.

There are also massive funds managed by institutional investors (called fancily portfolios).

Mutual funds are further divided in choice by global name brand funds, i.e.

Janus, Templeton, Invesco, Jardine Fleming, Vanguard, and Fidelity. And there are proprietary funds, usually set up and run by the same investment houses, i.e. Merrill Lynch, AARP Scudder, Paine Webber, JP Morgan etc. I am not a big fan of proprietary funds, and will take some flak for this. While they say they do not, generally, the broker selling these proprietary funds to you has a vested interest in seeing you buy these as opposed to a say, Janus or Invesco, for several reasons; the broker may get a higher commission than an Invesco fund will pay them; even if the broker does not receive a higher commission layout, his job performance may be directly related to how many in-house products he/she sells; the performance of these funds is sometimes difficult to compare to other Name funds of the same type and often the in-house product has not had a stellar performance; and proprietary funds are not portable, so if your broker dies or you have a falling out with him/her or you move, you must liquidate these products. And if they do happen to be performing well, you lose out on the continued appreciation while trying to time the market with a new investment advisor. I believe in free market choice.

Your Bermuda National Pension Scheme contributions are also in mutual funds, Argus, BFM, Colonial, Anchor, Bank of Bermuda, Sunlife, Kitson, Crown Life and Freisenbruch Meyer Group, Poinciana Pensions and others. While you will receive reports from the companies periodically, you can track the performance of these funds on your own. But that involves homework on your part to do the research.

Not all mutual funds are for everyone. Many are just as risky as the underlying stocks owned in the fund. You cannot actively trade mutual funds on a day-to-day basis, although that is changing as competition among investment firms for your investment dollar grows.

Next week: Which mutual funds are appropriate for which investor profile, how mutual funds are set up and reported and what does it cost to own them.