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The growth mutual fund is a diversified portfolio of stocks with the objective of capital appreciation over time and pays little or no dividends. These funds’ portfolios mainly represent stocks of companies with above-average growth. These companies will continue investing revenue in acquisitions, expansion, and research and development.
Almost all growth funds have the potential to generate a high level of capital appreciation in time, which is generally higher than average. Thus, the demand for growth funds is high on the market. With a long-term horizon, they are an excellent investment option. Read this guide below to acquire more information on growth funds.
Understanding Growth Fund Meaning
A growth fund is an equity mutual fund that aims to achieve maximum capital appreciation for investors. As the name suggests, These funds focus on companies with extraordinary revenue growth and promising a bright future.
Growth funds have a high-risk strategy as far as their exposure to risks is concerned. This is because investors are convinced that these rapidly expanding firms will leverage their capital to expand operations and thus deliver better returns to them over time. Growth funds tend to favour companies in their initial stages of development, which have robust prospects for rapid growth throughout the next few years.
Investment in growth funds is a long-term investment. Growth funds can be made available to investors who take risks and are willing to invest for at least five or ten years. Growth capital may not be the best option if you retire in a few years. If a shareholder leaves the fund before maturity, there is a significant exit load cost. Investing in growth funds can help boost your earnings substantially if you have a diversified portfolio that delivers steady returns and tolerates moderately high risks.
Features Of Growth Funds
The features of growth funds are as follows.
1. Diversification
Diversification of investments is recommended for you as an investor. Your investment portfolio is diversified when you invest in growth funds, which further reduces your investment risk.
2. The Potential For Increased Profits
The growth funds have a strong potential to generate returns for investors as they invest in companies that are likely to grow. However, growth funds are more exposed to risk, and their performance entirely depends on the current market conditions.
3. Professional Management
An expert fund manager manages the money you invest in growth funds. Fund managers follow the strategy of achieving maximum capital gains for their investors. The decision taken by the fund managers is based on investing in young and innovative companies to increase their portfolio value. You will surely achieve your investment objectives in the long run as a highly experienced financial professional familiar with market dynamics.
4. Long-term Investment
Investment in growth funds can benefit investors who wish to maximise their returns over five to ten years. Compared to traditional financial investments, compounding leads these funds to achieve more favourable returns over time.
Should You Invest In A Growth Fund?
Growth mutual funds invest in companies expected to grow, resulting in higher returns compared to higher risks. Thus, investors prepared to take a significant risk in the market can benefit from these aggressive funds. These funds should be used by investors willing to remain invested during market volatility.
Mutual funds investing in growth are a good choice for portfolio diversification. However, these funds may not work for you if you are an investor who is risk averse. Similarly, mature investors and investors saving for retirement are unsuitable for growth funds. However, for the benefit of significant capital appreciation, growth funds should be made available to young investors who can take risks and plan to remain in the market over an extended period.
Drawbacks Of Growth Fund
The limitations of growth funds are as follows.
1. Possibility of value decline
Due to the very volatile nature of these stocks, growth funds will likely lose their initial investment. The value of these stocks will increase and decrease with market conditions.
2. Dividends are not paid
Growth funds do not pay dividends. To sustain its growth, it invests profits in research and development. Therefore, investors who wish to gain secondary sources of income are not suited.
3. High risk
Growth funds invest in businesses with solid growth prospects, but these equities are also vulnerable to large price swings and unpredictable market movements.
Conclusion
Hopefully, the article will help you understand what growth mutual funds are all about. Proceed and invest in growth funds if you find that the information is suitable for your investment needs and risk profile. Compared to other mutual funds, these funds would be able to earn higher returns. Moreover, if you are looking for a reliable trading app, use the Share India trading app.
Frequently Asked Questions (FAQs)
What is the benefit of a growth fund?
The Growth Funds offer a diversified portfolio of high-growth shares to their investors. Therefore, investing in growth funds can achieve maximum capital appreciation.
Why is growth better than dividends?
If you want to buy stocks with less risk, stable returns and immediate benefits, dividend stocks may be a good choice. On the other hand, growth stocks may be suitable if you wish to have higher returns over time and can tolerate volatility and risk.
How risky is a growth fund?
Growth funds are allocated to Small, midsize, and large markets. Most are considered high-risk and generally best suited to individuals with a long-term investment horizon and a healthy risk tolerance.
