With the growth of mutual funds in India, many investors have started investing in these schemes to strengthen their financial position. If you’re looking for an investment for your long-term financial goals, growth mutual funds are a great pick.
In this article, we will explore the meaning of direct growth mutual fund meaning and how growth mutual funds help with your long-term goals.
A growth fund is a mutual fund scheme that invests in stocks of those companies that show the potential for promising returns. The primary purpose of growth mutual funds is capital appreciation.
Additionally, the growth mutual fund scheme does not pay a regular dividend, often paid out by other stocks in mutual funds. Instead, the investor allows the fund organisation to reinvest its money in stocks. As such, this type of mutual fund experiences good returns only when the market is bullish (a condition in which the stock market is expected to rise or already rise.)
A major reason to invest in a growth mutual fund is to realise your long-term goals.
Growth funds are auto compounders since the fund automatically reinvests the dividends. In this way, the fund's NAV maximises, and upon the sale of your growth fund, you receive a higher capital gain on the same number of shares you initially purchased.
This is because all dividends that would have been paid out are used by the fund company to re-invest in more stocks and grow your money. In this way, growth mutual funds play a prominent role in long-term wealth creation.
Though growth mutual funds help to realise long-term goals, it’s not an ideal choice for many, and those who can invest are:
If you’re closer to retirement age with an investment horizon of around 3 to 4 years, opting for other mutual funds is best.
If you’re willing to invest long without receiving dividends, a growth fund is an ideal choice. With Fi, you can invest directly in best growth mutual funds on a monthly, weekly, and even daily basis. Not to forget, investments are 100% secure, flexible, and commission-free.
A growth mutual fund is a well-diversified portfolio of stocks comprising companies with above-average growth. In these mutual funds, your profit earned is reinvested in the scheme compared to others where you receive dividends.
By opting for the growth mutual fund scheme, the investor permits the fund company to reinvest the money it would otherwise pay them in dividend form. As such, this money enhances the net asset value of your mutual fund.
Some factors that impact its performance are expense ratio, stock market, and company’s performance.
The growth mutual fund attracts plenty of investors because of its potential for capital appreciation. An expert fund manager spends many hours handpicking the stocks of companies that show impressive growth graphs. Additionally, multiple stocks of different companies support diversification that reduces overall risks.
On the other side, stock market volatility and the cost of asset management companies are two major shortcomings of growth mutual funds.
You can invest in growth mutual funds directly with an AMC or a broker, where these funds will be available as regular and direct plans. In the former plan, fund managers take care of the investment scheme. While if you invest directly, you need to have considerable knowledge of the stock market to pick the right stock.
