Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. They focus on those companies, which are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. Growth funds tend to look for the fastest-growing companies in the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation.
In India, growth funds became popular after the tremendous growth of the Indian companies during the post economic reforms period. The rapid growth of Indian industry attracted investors’ money to sectors of high growth and as a result growth funds came into being.
Objective of Growth Funds
The objective of growth funds is to achieve capital appreciation by in stocks of those companies, which are registering significant earnings or revenue growth. Growth funds offer tremendous opportunities for growth, when the financial market is bullish.
In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets. Only aggressive investors, or those with enough time to make up for short-term market losses, should buy these funds.