Mutual fund refers to a trust which pools the money from several small investors and invests that amount into stock market for generating returns for the investors. Growth mutual funds are those mutual funds which are aggressive in nature and the objective of such mutual funds is to provide capital appreciation for the investors.
Growth mutual funds are not ideal for everyone, rather it suits only some class of investors only which include –
- Young investors who have just started earning can invest into growth mutual funds, since growth mutual funds primarily invest into equities therefore they are risky because equity markets are bound to be volatile. Hence it is better to stay away from growth mutual funds if you are old age and your source of income is pension only.
- Investors whose objective is capital appreciation rather than recurring income can invest into growth mutual funds because growth mutual funds over a period of 3 to 5 years provide better returns in comparison to income mutual funds.
- People who have excess cash and time horizon of 5 years should invest into growth mutual funds because if one is having excess cash then he or she can invest into growth mutual funds, as growth mutual funds do not provide immediate return and therefore it is important to have longer time horizon.