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WHAT ARE GROWTH FUNDS?
Learn even more about this topic with the Encyclopedia of Personal Finance™

Growth funds are stock funds structured to appreciate over time.

The objective is for the stocks to grow in value, as opposed to paying regular dividends to their investors (although they sometimes do pay them). Growth funds are made mostly or entirely of stocks because stocks have a high potential to grow in value. Primarily, growth funds invest in common stocks.

Growth funds typically pay little or no dividends. Instead, the fund managers choose stocks they believe will cause the value of the fund to grow quickly and steadily over time. Often the stocks they choose do not pay dividends. A corporation may reinvest its surplus earnings to expand the company rather than pay dividends. Growth fund managers favor stocks of this type of corporation. This helps the funds grow. Rather than collecting dividends, investors who choose growth funds intend to make profits by reaping the increased value of the appreciated funds when they are sold?a process that may take years or even decades.

The volatility of growth funds is relatively high. This is because the companies they invest in are, overall, more vulnerable to market swings.

In the next section, you will learn how a fund's managers seek out stocks for growth funds.




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