As we discussed in our stock lessons, companies that are traded on the stock market are put into different categories.  Mutual funds will often specialize in stocks from the various categories or they may even specialize in bonds.  Here's a basic list of some of those specialties:
(For a list of some of the biggest types of funds, check out the next lesson.)

Growth Funds:
These funds buy stocks in companies that are growing a lot faster than their competitors.  Most of the money made by these companies (the profits) is put back into the company for more growth and expansion.  Because of this, they don't pay out money (called "dividends") to the stockholders.

Value Funds:
These funds buy stocks that are thought to be good values - i.e. the price of the stock is less than the company is really worth.  Some companies are really good, but they go through difficult times...  During these times, the price of their stock is low.  The great companies recover and the value of their stock soars.

Income Funds:
These funds buy stocks in well-established, older companies that are no longer growing -- like utility companies.  These companies pay out their profits to the stockholders -- i.e. dividends.

Blends:
These mutual funds are a combination of growth and value stocks.

Large, Mid, Small Cap Funds:
Funds will often focus on just large cap companies, or small cap, etc.  Here's the break down:

There are all sorts of combinations, each with their own advantages.  For example, you can get a large growth fund or a mid-cap value fund or a small-cap blend.

International Funds:
As you can probably guess, these funds invest at least two-thirds of their assets in stocks (and bonds) from other countries.  These funds are considered far more risky, so you should only keep a small percentage of your money invested in these.

Balanced Funds:
A balanced fund is a mixture of stocks and bonds -- maybe 60% stocks and 40% bonds.  Since bonds are safer investments, this makes the fund a safer gamble.  But, since bonds payout less, a balanced fund will not pay as high of a return.  You are, basically, buying some safety.

Government Funds:
These funds invest in government bonds, so you are, basically, loaning money to the government and they are paying you interest.

Municipal Funds:
These funds invest in municipal bonds.  States, counties, cities and municipalities sell bonds to raise money for things like road improvements and fixing up schools.  The advantage of muni-bonds (and muni-funds) is that you often don't have to pay as many taxes as you would with federal government bonds.

Convertible Funds:
No, this isn't a fund where you can put the top down!  These funds invest in convertible stocks and bonds.  Convertibles are typically offered by young, fast growing companies who need big cash, but they can't get it from a bank and they don't want to "go public."

Emerging Market Funds:
Technically, an emerging market is a country whose economy is made up of low to middle per capita income (this is the average income for every person (including kids) in the country).  These make up about 20% of the world's economies, but about 80% of the world's population.  For example, although China is a huge economy, it falls into this category because of its developments, advancements and changes.

Foreign Funds:
These funds invest in foreign companies.  Some funds even focus on just Asia or just Europe.

Although foreign and emerging market funds can produce very high results, they are very risky.