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What are Growth Mutual Funds and its Benefits?
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Growth mutual funds provide a strategic approach to capital appreciation. These funds meticulously select stocks from companies exhibiting above-average growth potential. Unlike dividend-centric counterparts, growth funds reinvest earnings into expansion and innovation. The emphasis lies in fostering steady, substantial returns over time. Investors must learn the subtleties of growth funds for superior returns. Explore their purpose and the tangible benefits they offer in this article.
What are Growth Mutual Funds?
Growth mutual funds are strategically crafted investment portfolios designed for long-term capital appreciation. These funds focus on companies exhibiting above-average growth potential, intending to foster substantial returns over time.
The primary characteristic of growth funds lies in their emphasis on capital appreciation rather than regular dividend payouts, making them inherently higher in risk. In these portfolios, investors commonly find a mix of growth-oriented assets, predominantly stocks. The objective is to tap into the growth potential of selected companies. The earnings of such companies are often reinvested for further expansion.
Benefits of Growth Mutual Funds
Types of Growth Mutual Funds
Growth mutual funds are categorised by market capitalisation: small-cap, mid-cap, and large-cap groups. Large-cap funds dominate the market, combining value and growth. Foreign large-cap funds hold a smaller market share. The rise of foreign growth funds appeals to investors seeking global opportunities.
Risks and Considerations
Investing in growth mutual funds comes with potential risks. Market volatility can impact returns, especially during economic downturns. The focus on high-growth stocks exposes investors to increased market sensitivity. And the lack of consistent dividend payouts might deter income-focused investors.
So, before starting, consider these important factors. Growth funds are better suited for long-term investors willing to weather market fluctuations. Assess the fund manager's track record and the fund's historical performance. Diversification is crucial to mitigate the impact of individual stock volatility. Carefully look into fees and expenses to ensure they align with your investment goals.
How to Invest in Growth Mutual Funds?
Here is a guide to streamline the investment process:
Characteristics of Growth Mutual Funds
These are the three main characteristics of growth mutual funds:
Investment in Growth-Oriented Securities: Growth mutual funds strategically allocate assets to stocks of companies displaying robust growth potential.
High Potential Returns: The primary goal is capital appreciation, offering investors the potential for above-average returns over the long term.
Risks Associated with Growth Mutual Funds: While the potential for high returns exists, investors should be mindful of the inherent risks linked to market fluctuations and volatility.
Comparison with Other Mutual Fund Types:
If you are willing to create wealth by considering investing in growth funds, Kotak Mahindra Bank can help you choose the suitable funds.
Frequently Asked Questions (FAQs)
Q: Which is better growth or dividend?
A: It depends on investor goals. Growth funds aim for capital appreciation, while dividend funds provide regular income. Choose based on financial objectives and risk tolerance.
Q: Is growth fund taxable?
A: Yes, growth funds are subject to capital gains tax upon redemption. Investors may incur taxes on the realised gains.
Q: What are the disadvantages of a dividend mutual fund?
A: Disadvantages of a dividend mutual fund include tax implications, potential lower capital appreciation, and dependency on market conditions for dividend payouts.
Q: What are the risks of growth funds?
A: Risks of growth funds include market volatility, potential loss during economic downturns, and susceptibility to stock market fluctuations.
Q: Is it good to invest in a growth fund?
A: It can be beneficial for long-term investors seeking capital appreciation to invest in growth funds. However, it depends on your financial goals and risk tolerance.
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