Explore Growth Mutual Funds in India: Features, Types, and How to Invest in Them.

If you’re new to the stock market and eager to see your money grow steadily, this is the perfect starting point. Imagine a stock market asset as your personal financial wizard, working tirelessly to make your money flourish over time. It’s like planting a tiny seed and witnessing it transform into a majestic tree, bearing abundant fruits for years to come. Yes, we are talking about the most talked about- growth funds in the mutual funds.

In this beginner’s guide, we’ll take you on a simple walkthrough about growth mutual fund, features, the types of growth funds in India, and the way to invest in them at zero brokerage.

Growth of Mutual Funds in India

Over the years, the best mutual funds in India have witnessed remarkable growth, captivating investors with their accessible and diversified investment opportunities. This financial vehicle has flourished, providing ordinary people with a chance to participate in the country’s economic growth while fostering a culture of long-term wealth creation.

What are Growth Mutual Funds?

Growth mutual fund are a type of investment fund that aims to provide capital appreciation over the long term. These funds typically invest in stocks of companies that have the potential for above-average growth.

To understand growth mutual fund better, let’s think of them as a “basket” or a collection of different “seeds” representing shares of various companies. Just like you’d diversify a garden with different types of plants to ensure a fruitful harvest, growth mutual fund diversify your investment across multiple companies with growth potential.

For example, think of a growth mutual fund as a collection of seeds from different companies like Tata, Reliance, and Infosys. As these companies grow and become more successful over time, the value of your investment in the mutual fund also increases. So, the more these companies thrive, the more your investment flourishes.

Growth funds in mutual funds are like a garden of potential, spreading your money across various promising companies and growing your wealth as they prosper.

Exploring the Features of Growth Mutual Funds

Growth funds in mutual funds are investment vehicles that focus on capital appreciation by investing in stocks of companies with high growth potential. These funds prioritise long-term growth over providing regular dividends, making them suitable for patient investors.

• Risk Factor: Growth mutual funds come with a higher level of risk, attracting investors with a willingness to embrace the market’s ups and downs. But fear not, as these risks often lead to promising returns in the long run!
• Market Volatility: Since growth mutual fund primarily invest in growth stocks, their value may fluctuate with market conditions. Just like the stock market itself, these funds can experience both exhilarating highs and challenging lows.
• Potential for High Returns: One of the most enticing features of growth funds is their potential for excellent capital appreciation. Skilled fund managers meticulously hand-pick growth stocks, fueling your investments with growth potential.
• Expert Fund Management: Rest assured, experienced fund managers are at the helm, diligently analysing and selecting growth stocks. They handle all buying and selling decisions, freeing you from day-to-day operations.
• Diversification for Reduced Risk: Reducing risk is the key, and growth mutual fund achieve this through diversification. These funds expertly blend stocks from fast-paced companies, creating a well-rounded portfolio that helps balance volatility.
• Long-Term Commitment: Growth funds require patience and commitment, as the best results often come with a longer investment horizon, ranging from 5 to 10 years. Embrace the journey and reap the rewards!
• Focus on Capital Appreciation: Unlike some other funds, growth mutual fund prioritize capital appreciation over paying dividends to investors. This strategy aims to maximise the growth potential for your investments.

Shoonya offers a brokerage-free investment with the option to choose from more than 3,000 direct mutual funds. Check it out!

Types of Growth Mutual Funds in India

In India, growth mutual funds are a popular investment option for investors seeking capital appreciation over the long term. These funds invest primarily in stocks of companies with the potential for above-average growth. Here are some common types of growth mutual funds available in India:

1. Large-Cap Growth Funds: These funds invest in large and well-established companies with a track record of stable growth. They aim to provide consistent returns by investing in blue-chip stocks.
2. Mid-Cap Growth Funds: Mid-cap funds invest in companies with a medium market capitalisation. These companies have the potential for higher growth than large caps but may also carry higher volatility.
3. Small-Cap Growth Funds: Small-cap funds focus on investing in stocks of smaller companies with higher growth prospects. While they offer the potential for significant returns, they can be more volatile and risky.
4. Multi-Cap Growth Funds: Multi-cap funds diversify their investments across companies of various sizes, including large, mid, and small caps. They offer a balanced approach to growth and are managed to capitalise on market opportunities.
5. Sector-Specific Growth Funds: These funds concentrate their investments in specific sectors or industries that are expected to grow substantially. Examples include technology, healthcare, banking, etc.
6. Thematic Growth Funds: Thematic funds invest based on specific themes or trends, such as digitalisation, renewable energy, or infrastructure development, which are expected to drive growth.
7. Equity-Linked Savings Scheme (ELSS): ELSS funds are tax-saving mutual funds with a lock-in period of three years. They invest primarily in equities and provide tax benefits under Section 80C of the Income Tax Act.
8. Focused Growth Funds: Focused funds have a concentrated portfolio of around 30-40 stocks, allowing the fund manager to focus on the best-performing companies.

How Do Growth Mutual Funds Work?

Let’s simplify the process with easy-to-understand steps:

Step 1: Investor’s Contribution

When you invest in a growth mutual fund, you’re not alone in this financial journey. Your money joins forces with contributions from other investors, creating a pool of funds.

Step 2: Expert Fund Managers

Imagine fund managers as savvy financial experts who know the stock market like the back of their hands. They carefully handpick growth stocks – those from companies with the potential to experience substantial growth.

Step 3: Stock Market Journey

As the companies in the fund grow and thrive, their stock prices soar, ultimately increasing the overall value of your investment.

Step 4: Capital Appreciation

Growth funds in mutual funds focus on long-term growth rather than providing regular dividends. They reinvest the profits back into the fund, giving your money a chance to grow even more over time.

Step 5: Diversification for Safety

Remember the age-old advice, “Don’t put all your eggs in one basket”? Growth funds follow this wisdom! They wisely diversify their investments across various companies to reduce risks. If one company faces challenges, others can help maintain balance.

Step 6: Time is the Key

Patience is key to reaping the rewards of growth mutual funds. They perform best when you stay invested for the long haul. The longer you hold onto your investment, the greater the chances of witnessing significant growth.

Step 7: Buying and Selling

Leave the complex stock market decisions to the experts! Fund managers skillfully handle all the buying and selling of stocks on your behalf. This way, you can avoid the stress of monitoring the market daily.

Difference Between Direct and Growth Mutual Funds

Direct mutual funds refer to investments made directly with the fund house, while growth mutual funds indicate funds that prioritise capital appreciation by investing in high-growth stocks.

Aspect	Direct	Growth
Investment	Directly with fund house	Through intermediary
Expense	Lower (no commissions)	Higher (distributor fees)
Returns	Same as regular funds	Focus on capital appreciation
Control	More by investors	More by fund managers
Switching	Easy	May involve paperwork
Transparency	High in costs and NAV	May vary

Note: Investors should consider their specific financial goals and risk tolerance before making investment decisions.

Mutual funds are a popular investment option for many investors. However, there are different types of mutual funds available in the market, such as direct mutual funds and growth mutual funds. Here are the key differences between direct and growth mutual funds:

Direct Mutual Funds

• You can invest directly with the fund house without involving a broker or intermediary.
• There are no commissions or brokerage fees, making the expense ratio lower.
• The returns are the same as regular funds.
• Investors have more control over their investments.
• Switching between funds is easy.
• There is high transparency in costs and NAV.

Growth Mutual Funds

• These funds primarily invest in growth stocks, which are expected to grow at a faster rate compared to the overall stock market.
• They focus on capital appreciation.
• They are available in both direct and regular plans.
• The expense ratio is higher due to distributor fees.
• The fund managers have more control over the investments.
• Switching between funds may involve paperwork.
• The transparency in costs and NAV may vary.

Investors should consider their investment goals, risk tolerance, and investment horizon before choosing between direct and growth mutual funds.

Should You Invest in Growth Mutual Funds: Analysing the Benefits of Growth Funds in India?

Looking at the growth of mutual funds in India in the past years, and before you choose to invest in growth mutual funds, you must take a look at the varied advantages that provide an attractive choice for investors seeking growth and financial success:

• Potential for Exceptional Returns: Growth mutual fund offer the opportunity for excellent returns on your investments, which pertains to the fact that they are often invested in carefully selected growth stocks with promising potential.
• Tax Efficiency: Embrace the tax advantages! Growth funds attract long-term capital gains tax (LTCG tax), making them more tax-efficient compared to Top of Form’s other investment options.

As per the Finance Act 2023, there are some changes in the taxation of mutual funds in India. For equity mutual funds, the long-term capital gains tax rate will remain at 10%, which means any gains made from holding these funds for over one year will be taxed at this rate. However, the short-term capital gains tax rate for equity mutual funds will increase from 15% to 20% starting from April 1, 2023, for gains made on investments held for one year or less.

• Enhanced Portfolio Diversification: Experience the power of diversification! By adding growth stock funds to your investment portfolio, you can enjoy high returns while effectively managing risk.
• Expert Fund Management: Leave it to the experts! Skilled fund managers handle the day-to-day operations, carefully analysing and selecting growth stocks to maximise your investment’s potential.

Conclusion

In conclusion, growth mutual fund offer an enticing opportunity for investors seeking long-term wealth accumulation. These funds focus on capital appreciation and invest in companies with the potential for above-average growth. While they come with higher risk, the potential for excellent returns makes them attractive to those willing to weather market fluctuations. Investors should carefully consider their financial goals and risk tolerance before investing.

Key Takeaways

1. Growth mutual funds aim to provide capital appreciation by investing in companies with high growth potential.
2. They prioritise long-term growth over providing regular dividends, making them suitable for patient investors.
3. Growth funds offer the potential for excellent returns, but they also come with higher risk due to investing in growth-oriented companies.
4. There are various types of growth funds in India, including large-cap, mid-cap, small-cap, sector-specific, thematic, and focused growth funds.

FAQs | Growth Mutual Funds

______________________________________________________________________________________

Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.