What is a Growth Fund?

Growth fund is a kind of investment scheme made for capital appreciation. Therefore, investors who are looking to increase their wealth in the long run find a growth fund as an interesting option to invest. Such kind of funds preferably invest in those assets which are designed for growth like equity shares as they are believed to rise in value over a period of time. Growth funds concentrate on capital gains instead of providing income at regular intervals. 

When you invest in growth funds, you are actually buying a portfolio of equity shares that are anticipated to appreciate (Increase) in value. Usually these are stocks of companies - that are growing or expected to grow in the future. The underlying idea is that as these companies grow in the future, the price of their stocks will increase, resulting in appreciation in the value of the growth fund.  

However, one needs to be patient and have a medium to long-term perspective while investing in growth funds as returns from these funds are linked to the performance of the equity market, which can be volatile in the short run. Though equity as an asset class has outperformed most other forms of investments in the long term, the value of such investments do tend to witness significant ups and downs especially in shorter time spans. 

The above mentioned is one of the most important things that you would need to consider before investing in growth funds. The values of the underlying equity shares in a growth fund could be affected by a number of things which include market sentiment, economic conditions, and company performance among other things. Consequently, returns on growth funds can be quite fluctuating in the short run that sometimes result in interim losses. 

Growth funds are a great mode of wealth creation through capital appreciation, especially if you have a long investment tenure. They come with the risk of short term volatility but their potential to generate higher returns over the long term makes them attractive for investors who can withstand the market ups and downs. 

If you're someone who is likely to panic at the sight of short-term losses, growth funds might not be the best option for you. However, if you are a patient investor who is ready to go through the ups and downs of the market, growth funds can be a rewarding investment over time. 
 

Disclaimer 

Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.