Traditional mutual funds have restrictions on margin and short trading. As a rule when it comes to the investment strategies for retirement, education and other long-term investments, traditional funds could be the best choice. However, with introduction of index tracking funds (funds that track performance of the indexes) mutual funds trading started to attract more and more speculators. Following the demand of the active traders the stock market has developed inverse mutual funds (funds that profit in Bear markets) and dynamic mutual funds (funds that use dynamic assets allocation strategies).

As a rule dynamic mutual funds utilize leveraged instruments, such as futures contracts and options on securities, futures contracts, and stock indices. When it comes to the index tracking funds, dynamic index funds (also known as double index funds and ultra index funds) track the double performance of the corresponding benchmark indexes. As an example, the Rydex Dynamic S&P 500 Fund performance corresponds to 200 percent of the daily performance of the S&P 500 index (^SPX). If the S&P 500 made 1 percent move up by the end of the session, the Rydex Dynamic S&P 500 Fund will report 2% profit. Respectfully, if the S&P 500 index declined by 1 percent by the end of the session, the Rydex Dynamic S&P 500 Fund reports 2 percent loss. However, due to the fund adjustment in some cases the dynamic index funds may report return that differs from the index performance.

Mechanism of the dynamic index funds could be compared to the trading stocks on margin. The same as stock margin trading, the dynamic index funds are subject to the margin requirements. The difference is that stocks could be traded during trading session and funds could be traded once a day at the market close. The other difference (in favor of funds) is that retirement portfolio cannot be used to trade stocks on margin, however, it could be used to trade dynamic mutual funds.

There are many different families of dynamic index funds. Starting from the double Exchange Traded Funds (ETFs) and finishing by Rydex, Potomac and other dynamic funds. Majority of dynamic mutual funds are available through many online discount brokerages. Some of the popular Rydex Dynamic funds are listed below:

• Rydex Dynamic S&P 500 Fund - was developed to provide investment results that correspond to 200 percent of the S&P 500 daily performance.
• Rydex Inverse Dynamic S&P 500 Fund - was set  to provide returns that correspond to 200 percent of the inverse performance of the S&P 500.
• Rydex Dynamic OTC Fund - tracks performance of the NASDAQ 100 index (NDX) and designed to deliver investment results that correspond to 200 percent of the NASDAQ 100 index daily performance.
• Rydex Inverse Dynamic OTC Fund - was developed to provide investment results that correspond to 200 percent of the inverse performance of the NASDAQ 100 on a daily basis.

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