A mutual fund company invests your money in a wide range of short-term investment mechanisms such as stocks, bonds, securities and assets. When a mutual fund earns profit your investments will earn you handsome dividends but, when a mutual fund faces a loss, the value of your shares will crash down. To be rated as a top mutual fund, a fund must be a no-load stock fund with net assets greater than $30 million and have a performance record of three to five years. According to the directives of the U.S. Securities and Exchange Commission, every mutual fund that sells its shares to the public is supposed to publish a prospectus, stating its objectives and informing how the funds intend to achieve its goals.

A mutual fund's category is an important factor deciding where you should make your investments. Therefore, it is important to understand the mutual funds by their category since there are different risks and benefits associated with it. You can choose from the different categories of mutual funds available depending on the size (such as large-cap, mid-cap or small-cap) or even by the style (such as blend, growth or value). Category rating grades the performance of mutual funds by category.
 
Some of the top mutual funds categories include -- Value Stock Funds, Growth Stock Funds, Income Stock Funds, Foreign Stock Funds and Market Cap Funds. Besides these categories, you can also invest in sector funds, index funds and exchange traded funds.