A growth mutual fund is a diversified portfolio of stock with the primary goal of capital appreciation over time, with minimal or nil payouts of dividends. The portfolio of these funds mostly has stocks of those companies that have above-average growth. These companies will go on to reinvest their revenue earnings in their acquisitions, expansion, and R&D (research and development).
Almost all the growth funds come with the potential to provide a high potential for capital appreciation over time, which is generally at a level above-average. Hence, there is a lot of demand for growth funds in the market. They are an excellent option to invest with a long-term horizon.
Understanding Growth Funds
Growth funds implement the strategy of high-risk high-reward. This makes growth funds ideal options for those investors that are going to invest with a long term investment horizon. Therefore, those who are risk-averse or are nearing their retirement may not consider investing in these funds as their risk profile is not in sync with.
One must invest with an investment horizon of at least five years. It would be best if one could stay invested for more than ten years. Growth funds generally have a higher price-to-sales and price-to-earnings folds. This will be compensated for the investors as they get above-average returns and earning from the funds.
Knowing the potential of growth funds, the fund managers make use of blend funds, value funds, and growth funds to frame an aggressive investment fund. These are much more volatile when compared to the categories of blend funds and value funds.
Generally, the growth funds are often broken by market capitalisation. They are represented by large-cap, mid-cap, and small-cap categories.