Mutual funds can be classified in many ways and one of the ways to classify mutual fund is according to the investment objective of the investors. Investment objective of the investor can be either growth of his or her capital or constant income and that is why mutual funds are classified as either growth or income funds.
Growth funds are those funds whose objective is to provide capital appreciation to the investors over a period of 3 to 5 years. Growth funds invest the money in equities and therefore these funds are not suitable for those who cannot take risk and want a regular source of income like retired people, rather they are for those who are young and have just started earning money and therefore they can take the risk.
Income funds are those which provide regular and steady source of income to the investors and that is why tend to invest major portion of the money in fixed income instrument such as bonds and debentures and very small portion in equity market and that is why the scope of capital appreciation is limited in such funds. They are ideal for retired people and those who do not want to risk their capital and want steady returns.