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Most investors prefer to invest in a growth fund over a general income fund as they offer better return potential. In addition, investors want to get dividend incomes as well as capital appreciation.
The funds are also known as equity funds as the aim of growth funds is to achieve a long term capital growth rather than regular income. It is always advisable to invest in diversified growth funds that cover not just a group of companies but also different sectors. This allows investors to diversify their resources (investment) so that they have a wider range of options open to them. For instance, you invest in a growth fund that has stock options for sectors like IT, cement, pharmaceuticals and steel. Suppose the stocks of cement and steel companies are not doing well, you will still be left with stocks of IT and pharmaceuticals that will perform and balance out your portfolio.
Growth funds can be categorized into two types:
- Aggressive: This is a mutual fund that tries to achieve the highest possible capital gains. Investors should be ready to accept high risk and high return as either is possible. They are also known as capital appreciation funds or maximum capital gain funds.
- Conservative: This type of fund is the exact opposite of an aggressive growth fund. Here the investment is targeted towards investors who are willing to earn on a regular basis rather than wanting high capital gains. This type of growth fund has little risk associated with it and is considered safe and secure.
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