While investing in equity funds, you will have two options to invest, growth or dividend funds. A growth mutual fund mainly invests in relatively younger but promising firms that can offer excellent returns against your investments.
Now, you may be wondering what growth funds are, how they work, what their types and benefits are.
To know about them, check the information as mentioned below.
Growth mutual funds aim to achieve relatively higher capital appreciation than other funds by investing in growth-oriented assets like equities. These funds mainly focus on investments which exhibit remarkable growth potential. Also, these funds include stocks with little or next to no dividend payouts.
Growth funds are volatile in the short term because their value depends on the prices of the shares in which the funds are invested. However, in the long run, equity has outperformed most other investments when it comes to returns.
As per their market capitalisation, growth stock mutual funds are split into three types – small cap, mid cap and large cap funds.
| Parameters | Large Cap Funds | Mid Cap Funds | Small Cap Funds |
| Definition | As open-ended equity funds, they invest at least 80% of their total assets in large cap company stocks. Large cap firms are reliable. | As open ended equity funds, they invest in at least 65% of their assets in mid cap firms. | These open ended equity funds invest a minimum of 65% of their assets in small cap stocks. |
| Risk Profile | These funds are less risky. | Such funds are riskier than large cap funds but less risky than small cap funds. | These funds are the most risky. |
| Returns | They offer steady returns over a long period. | These funds offer more returns than large cap funds. | These funds offer the highest returns. |
As mentioned above, growth mutual funds invest in growth-oriented assets like equity shares. They aim to provide capital appreciation to the investor. You need to invest with a medium-term or long-term horizon.
Here is an illustration to help you understand the scenario -
Suppose you purchase 100 units of a growth mutual fund at Rs. 20 each, then your investment at that time will be Rs. 2,000. After a year, you decide to sell these 100 units of mutual fund for Rs. 30 (each unit). Then the difference of Rs. 1,000 is your capital gain from your growth stock.
This is how growth stock funds function.
Growth funds bring along a range of benefits for you. Please take a look at them below.
If you have a high appetite for risks and seek a mutual fund with high returns, then you may consider investing in these funds. In case you have retired or nearing your retirement, then consider not investing in such funds. Having a long term investment horizon of 5-10 years is crucial to investing in these high growth stocks.
With such funds, you can exit early; however, an early exit comes with an exit load. You will earn your returns only through the profits generated from selling these funds. In case this suits your investment persona, you may consider investing in growth mutual funds.
How to buy growth stock mutual funds? Well, Investing in such funds is easy. Here are some pointers -
However, regular plans are suitable if you have less knowledge and want to avoid researching and monitoring a fund. In this case, all these activities are taken care of by fund managers.
Here, we have listed a few important pointers of such high growth funds below.
Thus, growth funds in India offer excellent returns against your investment in them. However, you must be ready to be patient with these funds and must possess a long term investment plan. Also, you must be ready for any risk as such funds are extremely volatile.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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