What Are Growth Mutual Funds?
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What Are Growth Mutual Funds?
Growth mutual funds are investment portfolios structured to appreciate over time. The portfolios may be largely invested in growth equities, but they will have a diversified portfolio as mandated by the fund objectives.
Things To Know
- Growth funds are made of investments with a high potential to grow in value.
- Growth funds typically do not seek to pay dividends.
What they aim for
The objective is for the stocks to grow in value, as opposed to paying regular dividends to their investors (although they sometimes do pay them). Growth funds are made of various investments such as stocks that have a high potential to grow in value. Primarily, growth funds invest in common stocks.
Don’t expect much (or any) current income from them
Growth funds are generally not designed to pay dividends, sometimes only doing so infrequently in small amounts or not at all. Instead, the fund managers choose stocks they believe will cause the value of the funds to grow over time. Often the stocks they choose do not pay dividends. A corporation may reinvest its surplus earnings to expand the company rather than pay dividends. Growth fund managers favor stocks of this type of corporation. This helps the funds grow. Rather than collecting dividends, investors who choose growth funds intend to make profits by reaping the increased value of the appreciated funds when they are sold—a process that may take years or even decades.
The volatility of growth funds is typically high when compared to income funds. This is because the companies they invest in are generally more vulnerable to market swings.
