Your best bet at accumulating wealth is to invest your money in such a way that it grows as the time passes. One way to achieve this is to invest directly in stocks. But for those who don’t want to invest directly in stocks, the other way is to invest in growth funds.
It has been seen that in the long run, stock markets outperform other investment classes like bonds, bank deposits, and government securities. At the same time, they are fraught with risks because of the extreme volatility found in the stock market. Hence people tend to shun them.
But there is no need to avoid them. You can still enjoy the spectacular returns of stock market while minimizing the risk to your capital by investing in growth funds of the mutual funds.
As the name suggests, the growth funds aim to generate capital growth. They basically invest in stocks of various companies, whose prospects for growth are quite high. They choose companies operating in various sectors, with a bright future. Since diversification is the key to make profits in stock markets, the growth funds easily achieve it by spreading their portfolio amongst various sectors and amongst various companies of different capitalizations.
The growth fund has a fund manager whose job it is to study the prospects of various companies and choose stocks accordingly. S/he decides when to buy and when to sell. This takes away all the technical work from the hands of the investors. It also eliminates the chances of losing money, since the fund manager is a qualified professional. In fact, some mutual funds have even outperformed the market indices, generating massive returns for their investors.
But all this comes at a price. The mutual funds charge a steep entry load. An entry load is the fee charged by the mutual fund to recover its expenses like buying and selling costs, advertising expenses and distributor commissions. Besides, there are annual charges that can be as high as 6%.
Growth funds are a good way to enjoy stock market exposure. But if you are prepared to spend some time to study stocks, you too can achieve the same level of returns at a lower cost.
Have you ever invested in growth funds? Were you happy with the returns generated? Do you prefer to invest in stocks instead?
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