Equity Mutual funds are normally classified into different types of category. However it can be simply divided in 2 types i.e. Growth and Value. The characteristic of both Growth and value equity fund differs from each other. So it is important to understand their characteristic in order to build an investment strategy which will suit the investment objective of an individual.
Below is the detailed description of Growth and Value equity mutual fund which may help an investor to build a strong portfolio.
Growth Fund – It includes stocks of the companies which are expected to grow at a faster rate as compared to the overall market. Growth funds offer higher potential capital appreciation but usually at above-average risk. High risk-reward makes this fund an ideal investment tool for those not retiring any time soon. It is advisable that an individual should have a high risk appetite and should hold their investment for 5-7 years in order to gain good return from their investment. Growth fund invests their corpus in both large and mid-cap fund.
Value Fund – It includes stocks of those companies which are fundamentally undervalued. Those who have a low risk appetite may invest their corpus in value fund as the risk exposure is quite less when compared to growth equity funds. Also it provides higher dividends and capital appreciation to its investor.
It appears that growth investors enjoy higher returns compared to value investors in form of dividend and appreciation of stock. The risk associated with value fund is less compared to growth fund during market volatility. So depending on one’s risk appetite and their goals and objectives one should accordingly decide whether they should go for growth fund or value fund.