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The growth, or performance investors can expect from a mutual fund depends on market performance from year to year as well as the type of mutual fund you invest in. There are many different types of mutual funds, each with varying rates of performance and stability. Choosing the fund that is right for you will depend on your investment time horizon and your tolerance for risk.
Among the popular types of mutual funds available to investors, the broad categories are bond funds, money market funds and stock funds. Stock funds can differ distinctly by the types of stocks the mutual fund owns. For example, an income fund owns stocks that pay regular dividends. Growth mutual funds invest in shares of stocks of companies that may not pay dividends, but are expected to produce significant capital gains through future growth.
Stock mutual funds are usually grouped into one of two general categories: growth or value. The overarching objective of each is the same -- to achieve a return on investment -- but the approach used to accomplish this can differ not only by category, but also depending on the types and classes of stocks that make up the particular fund's portfolio.
Broadly speaking, there are two ways to accumulate wealth using mutual funds. One is to select a fund designed to seek growth, typically from common stocks, and the other is to pick a fund that pays dividends and reinvest them in additional fund shares. Historically, both strategies have worked well–over time–and they need not be mutually exclusive. Some funds seek a combination of capital growth and dividends.
A growth mutual fund is designed to grow the money invested in it by paying attention to industries with high expectations of growth. Understand what is meant by the word growth when referring to mutual funds and how it plays a role in investing decisions with tips and advice from an experienced financial adviser in this free video.
