While investing in equity funds, you will have two options to invest, growth or dividend funds. A growth mutual fund mainly invests in relatively younger but promising firms that can offer excellent returns against your investments.

Now, you may be wondering what growth funds are, how they work, what their types and benefits are.

To know about them, check the information as mentioned below.

Growth mutual funds aim to achieve relatively higher capital appreciation than other funds by investing in growth-oriented assets like equities. These funds mainly focus on investments which exhibit remarkable growth potential. Also, these funds include stocks with little or next to no dividend payouts.

Growth funds are volatile in the short term because their value depends on the prices of the shares in which the funds are invested. However, in the long run, equity has outperformed most other investments when it comes to returns.

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As mentioned above, growth mutual funds invest in growth-oriented assets like equity shares. They aim to provide capital appreciation to the investor. You need to invest with a medium-term or long-term horizon.

Here is an illustration to help you understand the scenario -

Suppose you purchase 100 units of a growth mutual fund at Rs. 20 each, then your investment at that time will be Rs. 2,000. After a year, you decide to sell these 100 units of mutual fund for Rs. 30 (each unit). Then the difference of Rs. 1,000 is your capital gain from your growth stock.

This is how growth stock funds function.

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Growth funds bring along a range of benefits for you. Please take a look at them below.

• High Growth Potential: You will enjoy excellent returns against your investments in growth stocks because growth funds invest in stocks that are likely to perform better than the stock market. 

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• Tax Benefits: Growth stock mutual funds attract long term capital gains tax (LTCG tax). Tax gets levied at 10% if your earning exceeds Rs. 1 lakh and is held beyond a year.

• Diversified Portfolio: A mix of growth stock funds in your portfolio always helps in its diversification. It helps you earn high returns along with controlled risks.
• Fund Management: Experienced fund managers take the responsibility of managing and administering such funds. The entire activities starting from buying and selling of choices are left with these managers. Hence, it avoids all the hassle of monitoring funds on a daily basis and saves you from all operational tasks.

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If you have a high appetite for risks and seek a mutual fund with high returns, then you may consider investing in these funds. In case you have retired or nearing your retirement, then consider not investing in such funds. Having a long term investment horizon of 5-10 years is crucial to investing in these high growth stocks.

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With such funds, you can exit early; however, an early exit comes with an exit load. You will earn your returns only through the profits generated from selling these funds. In case this suits your investment persona, you may consider investing in growth mutual funds.

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How to buy growth stock mutual funds? Well, Investing in such funds is easy. Here are some pointers -

1. You can invest in them directly through an AMC (Asset Management Company) or a broker. These funds are available as regular and direct plans.
2. For a direct plan, you must possess considerable awareness of the stock market to make the right choice. In this case, you will need to check a fund’s returns history, expense ratio, and other details before choosing one.

However, regular plans are suitable if you have less knowledge and want to avoid researching and monitoring a fund. In this case, all these activities are taken care of by fund managers.

Here, we have listed a few important pointers of such high growth funds below.

• Risk Prone: Growth stock mutual funds are subject to high risks.
• Prone to Depreciation: Such funds may decline rapidly at times based on market demand and thus depreciate the stock’s value.
• No Dividend Returns: Such funds may not yield you regular returns from dividends, interest, bonuses, etc.
• Not Suitable for Short-Term Investment Horizon: If you seek profits in the short run, these funds are not suitable for you.

Thus, growth funds in India offer excellent returns against your investment in them. However, you must be ready to be patient with these funds and must possess a long term investment plan. Also, you must be ready for any risk as such funds are extremely volatile.