Information on a Growth Mutual Fund
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.
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Primary Assets
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In the U.S. capital markets, mutual funds differ not only in the makeup of holdings, but also in objectives or long range goals as well. Most are characterized by the primary holdings the fund owns. An index fund owns stocks that mirror a major market index such as the S&P 500 or the Russell 2000. Sector mutual funds may own stock in all the major companies in one industry sector, such as only health care stocks or financial stocks. Growth mutual funds may own stocks across all sectors of the market, as the primary objective of a growth mutual fund is to earn a high yield on capital gains in the future.
Earning Profits
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A mutual fund may increase in value as it collects interest and dividends from the holdings or through an increase in market value as the assets, such as stock shares, increase in value.
For example, as the fictional ABC Growth Mutual Fund works to earn profits for investors, the stock of the XYZ Corporation may hit an all-time high. The management of the ABC Growth Mutual Fund decides to sell the ABC fund's shares of XYZ stock and the capital gains are distributed to shareholders of the mutual fund. Many mutual funds will offer investors the option of automatically reinvesting capital gains back into the fund, and the shareholder accumulates more shares over time by investing profits.
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Fees, Charges and Considerations
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When purchasing shares of a mutual fund, an experienced investor will consider fees. Load charges on purchases, sales charges when an investor sells shares and any management fees should be considered. No-load funds sell shares to investors without a commission, yet management fees may be higher, depending on the type of fund. A prospectus of a growth fund will fully detail the total annual expenses an investor can expect to incur. As seasoned investors repeat and most mutual fund prospectuses will state clearly -- past performance of a fund is no indication of future performance.
General Appeal
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One of the main reasons ordinary investors choose mutual funds over other types of investments is that many mutual funds offer instant diversification to shareholders without having to invest large amounts of cash. For example, many mutual funds acquire holdings so that the total assets of the fund consist of a certain percentage of stocks, a certain percentage of bonds and a certain percentage of highly liquid money market securities. Growth mutual funds generally invest in stocks only.
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