What Are Growth Mutual Funds?
Growth mutual funds are investment portfolios structured to appreciate over time. They are generally composed of common stock.
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 mostly or entirely of stocks that have a high potential to grow in value. Primarily, growth funds invest in common stocks. Growth funds typically pay little or no dividends. Instead, the fund managers choose stocks they believe will cause the value of the funds to grow quickly and steadily 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 relatively high. This is because the companies they invest in are, overall, more vulnerable to market fluctuations.