A Growth Fund is basically a mutual fund that is made or compiled by a stock of companies in order to yield better dividends. They do re-present the potential for superior growths but then it is a bit risky. On a whole investors prefer to invest in a growth fund over a general income fund as they offer better greater return potentials. Moreover their basic aim is to strive for both dividend income and capital appreciation as they invest in companies that are reputed for dividend payments and capital gains.
They are also termed as equity funds as the goal is to achieve long term capital growth rather then regular income. It is always wise to invest in a diversified Growth Fund that not only covers a group of companies but a variety of sectors as well as this investments enables the investor to bifurcate their resources hence opening them up to a wide range of options. Say if you are investing in a Growth Fund that has five stock options namely IT, cement, steel, pharmaceuticals and FMCG (Fast Moving Consumer Goods).Now say two or three out of these five stocks isn’t doing well enough and you are losing out on investments, still you will have another couple of units left to look forward too.
Growth Funds are basically categorized into two categories, 1) Aggressive, 2) Conservative. An aggressive Growth Fund is a mutual fund that attempts to achieve the highest capital gains. Investments held in these funds are by companies that demonstrate high growth potential. People investing in this sort of growth funds should be ready to accept a high risk-return trade-off. They are also referred to as “capital appreciation fund” or “maximum capital gains fund”. Eg : Franklin U.S opportunity funds. Now the Conservative part. A conservative growth fund is exactly the opposite of an aggressive growth fund. Here the investment is basically targeted to a section of people who are willing to earn on a regular basis rather then a high capital gain. It is safe and secured and is a non-risky investment.
Basically most investors prefer investing in specific sectors such as IT (Information and Technology) or FMCG (Fast Moving Consumer Goods).In order to suit their needs, sector specific schemes are launched, to enable the investors to decide just how aggressive or conservative they want to be. As of today IT forms the most popular sectoral fund, although a variety of other funds also exist. Some examples are the Birla IT Fund, Alliance New Millenium, and Prudential ICICI FMCG Fund.
These funds basically invest across various sectors, primarily focusing on the modus of operandi of Multi-National Companies. This makes it a specialty rather than a sectoral fund. However they run a higher risk than diversified general equity funds, but one can expect higher long term returns as well.