Investors allocate their monthly income to mutual fund investments for reasons like enjoying capital appreciation and earning a steady source of income. However, you shouldn’t invest in mutual funds thoughtlessly. Different types of mutual funds have distinct benefits and features. One of these variants offers capital appreciation and growth, referred to asa growth fund. Growth fund is a fund that directs investments to new businesses having the potential to offer extraordinary returns.
What are growth funds?
The portfolio of a growth mutual fund consists of equity investments to achieve capital appreciation. Growth fund investments involve little or no dividend payments. A fund manager managing these funds invests in companies with areputation or new firmswith higher growth prospects.
How do growth funds work?
Growth funds have a high-risk, high-reward element. Therefore, these funds are ideal for young professionals who can take far more risks. Apart froma high-risk tolerance,you must have an investment horizon of approximately 5-10 years.
Tips to choose the right growth fund
As choosing the right growth fund is a daunting task here are some tips:
- Select funds with a good track record of long-termperformance
- Look upthe fund manager’s track record and experience
- A lower expense ratio is better
- Diversify your portfolio.Allocate funds to multiple asset classes and sectors
- Determine your investment goals and risk tolerance before choosing a growth fund
What are the advantages of growth funds?
Here are some benefits that are associated with a growth mutual fund investment:
- Diversification:
Restricting the investment to a small percentage can benefit you. A mix of growth stocks in a mutual fund portfolio can help in diversification. This reduces the overall risk of volatile stocks.
- Easy to invest:
Growth fund investments are easy thanks to technological evolution.Smartphone apps offer seamless investment processes. Apart from that, the auto-pay facilities offered by banking apps can help in mutual fund investments.
- Liquidity:
Liquidity refers to easy access to your investments. Growth funds are highly liquid as they invest in equities. Equity instruments have higher demand and supply in comparison to other asset classes.
- Capital appreciation:
Capital appreciation is the reason why growth fund investments are popular. You have a chance of enjoying above-average growth in the long run with growth funds. Numerous companies generally are on a high growth trajectory in growing economies. Hence, you can consider growth funds if you are willing to take on higher risks during a bull run.
- Expert management:
A team of qualified professionals are responsible for identifying growth stocks for the investors. Experts are responsible formaking decisions on the buying and selling of stocks. Your role is limited to that of a passive investor in growth funds and mutual funds in general.
Conclusion:
Growth funds are considered as best mutual funds by many, especially by aggressive risk-takers willing to continueinvesting for 5-10 years. Depending on market conditions, these funds may generate high returns.
