August 31, 2023

What is a Growth Fund

What Is A Growth Fund?

In a growth fund, the portfolio manager usually invests in companies expected to grow quickly and make a lot of money. These funds are great for investors who want their money to grow over the long term and are willing to take on more market risk in exchange for higher returns. 

Contents:

What Is A Growth Mutual Fund?

A growth mutual fund is an investment fund that primarily invests in growth stocks. These are stocks of companies expected to grow at an above-average rate compared to other stocks in the market. 

To elaborate, imagine a scenario where you invest in a growth mutual fund primarily investing in technology companies. These technology companies are often characterized by innovative products or services, and they reinvest their earnings back into their business to fuel further growth. 

Features of Growth Fund

The most significant feature of a growth fund is its primary focus on capital appreciation. These funds invest in companies with the potential for high growth rather than those providing significant dividend payouts.

Other features include:

  • Higher Risk: Growth funds often involve higher risk as they invest in companies betting on future growth potential, which might not always materialize.
  • Low or No Dividends: As these funds invest in growth-oriented companies, they typically have little to no dividend payouts as the companies reinvest the earnings.
  • Sector Agnostic: Growth funds can be sector-agnostic, investing in any sector that shows promising growth.
  • Volatile Returns: The returns on growth funds can be quite volatile due to their reliance on the growth of the invested companies.

Difference Between Direct And Growth Mutual Funds

The primary difference between Direct and Growth Mutual Funds is that Direct funds are those purchased directly from the fund house, thereby eliminating any commission fees. On the other hand, growth mutual funds are a type of mutual fund scheme focusing on capital appreciation.

ParameterDirect Mutual FundsGrowth Mutual Funds
ObjectiveTo enable investors to invest directly without intermediariesTo provide capital appreciation
Expense RatioLower due to the absence of intermediariesCan be higher as it’s not related to intermediaries
ReturnsDepends on the fund’s performancePotential for higher returns due to a focus on growth stocks
RiskDepends on the underlying securitiesGenerally higher due to investment in growth-oriented companies
DividendsDepends on the specific fundUsually, no dividends as profits are reinvested
Investment ApproachCan be invested in various funds – debt, equity, hybridPrimarily invested in stocks of growing companies
Suitable ForInvestors who can handle their own investmentsInvestors willing to take a higher risk for potentially higher returns

Types of Growth Funds

Growth funds can be divided into various types based on different criteria such as size, sector, and geography:

  • Size-based Growth Funds: These include small-cap, mid-cap, and large-cap growth funds, focusing on companies of specific sizes with high growth potential.
  • Sector-based Growth Funds: These funds invest in growth companies within a particular sector like technology, pharmaceuticals, or finance.
  • Geography-based Growth Funds: These invest in growth companies from a particular country or region.

For example, a large-cap growth fund might invest in established companies like Tata Consultancy Services or HDFC Bank due to their potential for continuous expansion. 

Benefits of Growth Mutual Fund

Investing in a growth mutual fund can offer several benefits, the primary one being the potential for significant capital appreciation. These funds primarily invest in companies projected to grow at an above-average rate compared to other companies in the market.

Here are other benefits, explained in bullet points:

  • High Returns: Over the long term, growth funds have the potential to deliver high returns due to their focus on companies with high growth rates.
  • Diversification: Growth funds invest in various sectors and companies, providing a level of diversification that can protect against market volatility.
  • Potential for Long-term Wealth Creation: As growth funds reinvest profits rather than distributing them as dividends, they can compound wealth over time.

Best Growth Mutual Funds

Based on historical performance, the top growth mutual funds are listed below.

Fund NameAMC5-Year Return3-Year Return1-Year Return
Nippon India Growth FundNippon Life India Asset Management19.36%34.82%29.34%
SBI Bluechip FundSBI Mutual Fund14.02%24.44%23.53%
Mirae Asset Large Cap FundMirae Asset Global Investments13.82%21.35%18.72%
HDFC Equity FundHDFC Mutual Fund13.75%23.16%22.58%
ICICI Prudential Bluechip FundICICI Prudential Mutual Fund14.45%24.30%21.66%
Aditya Birla Sun Life Frontline Equity FundAditya Birla Sun Life Mutual Fund12.72%23.26%21.15%
Axis Growth FundAxis Mutual Fund20.50%26.68%19.01%

How to Invest in Growth Mutual Fund?

Investing in a growth mutual fund is straightforward and can be done through various platforms, including Alice Blue. Here’s a step-by-step guide:

  1. Choose a platform: Register on a trusted platform like Alice Blue.
  2. Select a fund: Evaluate and select a suitable growth mutual fund based on your risk appetite, investment horizon, and financial goals.
  3. Investment amount: Decide the amount you wish to invest – you can start with as low as ₹500.
  4. KYC: Complete your KYC process – this involves providing your PAN, Aadhaar, and other relevant details.
  5. Invest: After KYC verification, proceed with the transaction to invest in the chosen growth mutual fund. You can invest in Mutual Funds for free with Alice Blue.

What Is A Growth Fund – Quick Summary

  • A growth fund is a type of investment fund focusing on capital appreciation by investing in companies with higher-than-average growth potential.
  • Key features of growth funds include the potential for high returns, reinvestment of profits, and investment in growth-oriented companies.
  • There are various types of growth funds, including aggressive growth funds, blend funds, and sector funds, each offering different risk-return profiles.
  • The benefits of investing in growth mutual funds include high potential returns, diversification, long-term wealth creation, and professional management.
  • Some of the best growth mutual funds include Nippon India Growth Fund, SBI Bluechip Fund, Mirae Asset Large Cap Fund, HDFC Equity Fund, ICICI Prudential Bluechip Fund.
  • Investing in a growth mutual fund can be done through platforms like Alice Blue, requiring investors to choose a fund, decide the investment amount, complete KYC, and proceed with the investment.
  • Invest in mutual funds at no cost with Alice Blue

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What Is A Growth Mutual Fund  – FAQs  

What is a growth fund in simple terms?

A growth fund, in simple terms, is a type of mutual fund that aims to achieve capital appreciation by investing in stocks of companies that are expected to grow faster than others in the market.

Which is better growth or direct mutual fund?

The choice between growth and direct mutual fund depends on individual investment goals. If you’re seeking capital appreciation and can forgo regular income, a growth mutual fund is a good option. However, if you prefer purchasing a fund without any intermediaries and a lower expense ratio, a direct mutual fund is a better choice.

What is growth vs value mutual fund?

Growth funds put their money into companies that they think will grow faster than most other companies on the market. On the other hand, value funds put their money into companies that are thought to be undervalued or cheaper than what they are really worth. 

What are the benefits of growth funds?

Here are some key benefits of growth funds:

  • High Return Potential
  • Diversification
  • Reinvestment of Earnings
  • Professional Management

What type of fund is a growth fund?

A growth fund is a type of equity or mutual fund that aims at capital appreciation by investing in stocks of companies that have the potential for rapid growth. These companies are often in the technology, biotech, and emerging industries.

Is a growth fund safe?

Investing in growth funds carries a certain level of risk as they focus on capital appreciation rather than income or stability. The fund’s value can fluctuate significantly due to the inherent volatility of the growth stocks in the portfolio. Therefore, they may not be the safest option for risk-averse investors or those seeking regular income.

Should I invest in a growth fund?

Whether or not you should invest in a growth fund depends on your investment goals, how comfortable you are with risk, and how long you plan to invest. A growth fund could be a good choice for long-term investors willing to take on a lot of risks and want their money to grow. But before making such decisions, it is wise to talk to a financial advisor.

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