There are four basic types of mutual funds. Each category has its own level of risk and reward. The basic rule of thumb? The greater the risk, the greater the potential reward. And vice versa.

Understanding the fundamental concepts behind each of these fund types can help you build a diversified, balanced portfolio.

Other types of funds — different but effective.

• Fidelity Freedom Funds^® change investment styles as your retirement date approaches.
• Fidelity Asset Manager^® Funds diversify across multiple asset classes according to your risk tolerance.
• Sector Funds invest in specific market sectors, such as technology or energy.
• Index funds attempt to mirror the performance of major stock exchange indexes—and they're now fixed at 10 basis points.
• Fidelity Enhanced Index Funds use quantitative computer-based models to seek out-performance of an index while matching the risk of a comparable index fund.
• Hybrid Funds invest in a blend of stocks and bonds to diversify your risk. Browse for Hybrid Funds.
• Specialty Funds invest in nontraditional securities such as real estate. Browse for Specialty Funds.
• Inverse and/or Leveraged Mutual Funds are funds that utilize inverse and/or leveraged investment strategies. These funds are suitable for sophisticated investors only. Such funds involve increased risks, including investment strategies where the funds move in the opposite direction of an underlying index or benchmark. As well, daily rebalancing may impair fund performance if a benchmark or index experiences volatility.