What is a growth fund?

A growth fund is a type of mutual fund or investment strategy that is focused on investing in companies that have high potential for growth in the near future. Typically, these companies are in the early stages of their business development, and have already shown strong performance in terms of revenue and earnings growth.

Growth funds are characterized by their ability to offer potentially high returns, but also, increased risk. This risk is because the companies that make up the investment portfolio of a growth fund typically operate in emerging industries or in high-growth sectors. Additionally, their strong growth potential is often counterbalanced by a higher volatility, which is characteristic of stocks of companies experiencing rapid growth.

Growth funds are popular investment vehicles for those with an investment horizon of 5 years or more as they focus on capturing the potential for long-term capital appreciation. The managers of growth funds typically engage in thorough industry and company research to identify those that have the potential to do well, but despite this effort, growth funds are considered to be riskier than investments in well-established, dividend-paying companies in mature industries.