The markets have been on an upswing and growth mutual funds have been in the buzz. Moreover, growth funds have continued to beat the expectations and perform well in the market. Henceforth, they should form the core of any portfolio. We discuss them in detail in this article. Let's begin!
What are Growth funds?
Growth funds are thus a type of mutual fund which invests in growth stocks of companies. Moreover, the aim is to grow the wealth massively. Thus, these funds invest in companies with a history of great returns or young companies with potential. However, the risk is also high.
Also, combined with blend & value funds, these funds form the main part of equity mutual funds. They are classified as small, mid, and large groupings as per market capitalization.
These funds thus comprise companies that record faster growth and give big returns. Subsequently, they re-invest the dividends into R&D, M&A, and expansion. Moreover, as the dividend payout is little to none, it is of no interest to the fund manager. It can hit the investors when the market falls just as it can earn good capital gains when it is high.
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Who should invest in such funds?
Growth mutual funds are high-risk investments. Therefore, one should invest in such funds only if they prefer to take extreme risks. Thus, they can deliver high returns. If you are retiring soon, you should avoid these funds. Such funds demand a long-term view of 5 to 10 years.
Also, the fund subsequently comes with an exit load. This means that you will thus have to pay an exit fee when you move out of the fund. Moreover, the only returns are on selling it, i.e. selling it at a price over and above the buying price. If you find it suitable, you can go for this fund. Hence, young investors find it appealing.
Top Performing Growth Funds in India 2021
|Fund||Assets(Cr.)||Min SIP Investment||3 MO(%)||6 MO(%)||1 YR(%)||3 YR(%)||2020|
|Aditya Birla Sun Life Small Cap Fund||₹2,787||1,000||15.6||41.5||97.8||7.7||19.8|
|L&T Emerging Businesses Fund||₹6,554||500||21.7||45.3||97||11.5||15.5|
|IDFC Infrastructure Fund||₹613||100||17.2||52||86||9.5||6.3|
|SBI Small Cap Fund||₹8,664||500||14.7||32.7||84.6||20||33.6|
Advantages of Growth funds
Here are some of the most promising advantages of growth mutual funds,
1. Greater chances of Higher Returns: This fund thus attracts a lot of investors as it offers wealth creation. Moreover, fund managers spend a lot of time choosing the best stock. Thus, a good bet.
2. Risk Factor: It is key to note that the risks involved in these funds are high. However, the massive returns, in the long run, are also the truth.
3. Diversification: Also, keeping a mix of growth stocks in mutual funds helps. Moreover, it reduces the risks.
4. Taxation: LTCG of 10% is levied on these funds if the gains exceed Rs. 1 lakh and kept for more than a year. Thus, making it more tax-efficient than value funds.
5. Expense Ratio: Also, these funds charge an expense fee and thus cost more. AMC pays this fee from your profits.
Disadvantages of Growth funds
These mutual funds subsequently have certain downsides as well,
1. Huge Market Risks: The risk of losing a significant amount of invested money is thus the biggest risk in such funds if the market goes down.
2. Value Loss: Moreover, these funds can lose their value if the market goes down. Thus, they are highly volatile.
3. No Dividend: Also, these funds might not pay out returns in the form of dividends, interest, bonuses, etc.
4. Long duration: If the investor wishes to benefit from these funds, they thus have to invest for 5 to 10 years.
How to Invest in these funds through Investify?
Investify thus makes it easier for you to invest in these mutual funds. Below are the steps to follow,
1. Firstly, visit https://www.investify.in/
2. Secondly, choose a fund or plan to start your investing.
3. Thirdly, create an account by signing up or log in. Alternately, you can book a virtual appointment with our CFP to help you out.
4. Fourthly, begin investing and set up an online transfer.
5. Lastly, you can track your investment.
Documents required for investing
Some mandatory documents are as below,
1. Recent Photographs.
2. Address proof(Aadhar/DL/Utility bills/Voter ID)
3. Identity proof(PAN Card/Aadhar/Voter ID/Passport)
4. Savings Bank Account details.
Growth mutual funds are thus an exciting as well as risk-prone option to invest in. Moreover, these funds invest in stocks of high-return companies or new ones with potential. Also, the chances of getting big returns are high in a bull market.
In contrast, there is also a chance of losing a good amount of money in a falling market. Thus, it is important to know the risk before investing.
Also, those nearing retirement should avoid them while young individuals with a long-term view can go for this. Taxation mostly requires 10% LTCG for gains over Rs. 1 Lakh.
Flexi-cap, mid-cap, and large-cap funds have thus managed Rs. 3.4 lakh crore as per AMFI data of April 2021, a reflection of investor confidence.
So, get on the momentum bus and make great gains. Happy investing!
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