What Kind of Mutual Funds Are High Return?

New companies can hit highs and lows before evening out.

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Different mutual funds have different goals, strengths and management styles. One of the strategies mutual fund managers employ is to lower the risk of investment through diversification. To earn a higher return, however, you will have to invest in riskier operations. Other considerations come into play when you’re looking for high returns as well, such as the amount of money the firm spends on management.

Junk Bonds

Even though they typically are considered stable, every bond fund involves risk, as they can depreciate in value substantially if interest rates go up. Junk bonds are just what they sound like -- bonds issued by entities that have a poor credit rating and high risk of defaulting. On the other side of this equation, mutual fund companies that specialize in investing in bonds from low credit rating entities can provide tremendous returns if they know what they are doing. Successfully picking out companies that have been unfairly labeled as extreme default risks can turn investment in junk bonds into a profitable venture.

Hedge Funds

Hedge funds take their name from trying to "hedge" their bets on stocks that rise and fall faster than the market as a whole. Hedge funds in general are risky propositions that take advantage of timing, financial calculation, borrowed money and the volatility of markets to make a high return. A well-managed, well-functioning hedge fund can minimize risk while enhancing profit. Unfortunately, even the best managed fund with the most intelligent strategy can't always pull this off. Hedge funds offer a chance to make profit substantially above the market average, but it's best not to invest money in hedge funds that you can't afford to lose.

High Performing Stocks

Mutual funds that focus on the stock market, rather than money markets or bonds, tend to have higher rates of return. When shopping for funds that are likely to grow quickly, consider that mutual funds focusing on cutting edge, high-tech stock companies are likely to have a high rate of return. The high-tech market tends to be more volatile, but it grows quicker than well-established sectors like energy. Stock-based mutual funds can make substantial profits by investing in quickly growing industries. Additionally, they can take advantage of the variety of market trends and changing financial regulations in different countries.

Low Cost Funds

If you only look at your returns, you can easily gloss over the fees and expenses involved in mutual funds that often level profit. Any mutual fund has expenses -- operating costs, management fees, bonuses and fees that apply whenever shares are bought or sold. These costs are simply the price you pay for security, management and investment expertise. However, costs can vary widely from fund to fund. To maximize returns, look for a sleek mutual fund with low overhead that does not charge exorbitant fees or spend irresponsibly in markets that are not helping you make a profit.