Growth Fund

What is a 'Growth Fund'

A growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. The portfolio mainly consists of companies with above-average growth that reinvest their earnings into expansion, acquisitions and/or research and development. Most growth funds offer higher potential capital appreciation but usually at above-average risk.

BREAKING DOWN 'Growth Fund'

This high-risk, high-reward mantra makes growth funds ideal for those not retiring anytime soon. Investors need a tolerance for risk and a holding period with a time horizon of five to 10 years. Growth fund holdings often have high price-to-earnings and price-to-sales multiples. This trade-off from investors is the above-average revenue and earnings gains these companies produce.

Main Type of Mutual Fund

Growth funds, along with value funds and blend funds, are one of the main types of mutual funds. They are more volatile than funds in the value and blend categories. Growth funds are typically split by market capitalization, with funds representing small-cap, mid-cap and large-cap groupings.

Large-cap growth funds are the biggest class of growth funds with a 9.9% market share and $2.2 trillion in assets. This trails only large-blend funds, which offer investors value and growth. Large-blend funds have a 15.9% market share. Foreign large-cap growth funds rank 11th of all mutual fund classes with a 2.3% market share.

Foreign growth funds are becoming more common for investors who want to take advantage of global growth. These funds invest in international stocks posting strong revenue and earnings growth. For international growth funds, technology and consumer sectors are the most common. Large internet names such as Tencent, Baidu and Alibaba can be found among the top 10 holdings for many international growth funds.

The Largest Growth Fund

As of 2016, the largest growth fund is the Growth Fund of America from American Funds. This mutual fund has $140 billion in assets under management (AUM). It continues to perform well with an average gain of 5.8% annually over the last 10 years.

The Growth Fund of America has Amazon.com Inc. as its largest holding, representing 6.3% of assets. Technology stocks represent the largest sector weighting at 23%. Consumer discretionary stocks follow closely behind with 20% of assets. Amazon.com and Microsoft were the two largest-held stocks in growth funds in 2015.

Technology stocks are a major part of growth funds. With high growth and high price-to-earnings and price-to-sales valuations, technology stocks fit the criteria perfectly for growth funds.

RELATED TERMS
  1. Capital Appreciation Fund

    A mutual fund that attempts to increase asset value primarily ...
  2. Value Fund

    A stock mutual fund that primarily holds stocks that are deemed ...
  3. Aggressive Growth Fund

    A mutual fund that attempts to achieve the highest capital gains. ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Equity Fund

    A mutual fund that invests principally in stocks. It can be actively ...
  6. Foreign Fund

    A mutual fund, closed-end fund or exchange-traded fund that invests ...
Related Articles
  1. ETFs & Mutual Funds

    The Top 5 Large Cap Growth Mutual Funds for 2016

    Understand how growth investing through mutual funds presents an opportunity for investors, and learn the best growth mutual funds for 2016.
  2. ETFs & Mutual Funds

    The 5 Best American Funds

    Discover five of the best-performing mutual funds offered by American Funds, based on the funds' five-year average annualized returns.
  3. ETFs & Mutual Funds

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  4. Managing Wealth

    Mutual Funds: Different Types Of Funds

    No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means ...
  5. ETFs & Mutual Funds

    The Top 5 Small-Cap Growth Mutual Funds for 2016

    Understand how small-cap growth stocks fit into an investor's portfolio, and learn the best mutual funds in the category to consider for 2016.
  6. ETFs & Mutual Funds

    Top 5 American Funds for Retirement Diversification in 2016

    Discover five mutual funds from industry leader American Funds with high yields that are perfect for retirement savings diversification.
  7. ETFs & Mutual Funds

    Top 5 Oppenheimer Funds for Retirement Diversification in 2016

    Discover the top five Oppenheimer Funds for diversifying your retirement savings. Learn how to balance your portfolio for maximum safety and return.
  8. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  9. ETFs & Mutual Funds

    The Top 5 Large Cap Mutual Funds for 2016

    Learn about the top large-cap mutual funds for 2016. Read about funds with active management that keep expense ratios low for investors.
  10. ETFs & Mutual Funds

    4 Mutual Funds that Hold Tesla Stock (TSLA)

    Obtain information on the four mutual funds that have significant allocations to Tesla Motors, Inc. in their major portfolio holdings.
RELATED FAQS
  1. Which option is better on a mutual fund: a growth option or a dividend reinvestment ...

    When selecting a mutual fund, an investor has to make an almost endless number of choices. Among the more confusing decisions ... Read Answer >>
  2. Can mutual funds only hold stocks?

    Learn about which types of mutual funds consist of only stocks, which may include stocks in addition to other assets and ... Read Answer >>
  3. Why is it that when investors realize returns on a mutual fund, its price tends to ...

    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
  4. How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group ... Read Answer >>
  5. What is the difference between a blend fund and a balanced fund?

    As both "blend"and "balanced" describe the particular asset mix of mutual funds, determining the exact distinctions between ... Read Answer >>
  6. What are some of the most common mutual funds that give exposure to the Internet ...

    Learn about some of the most popular and best performing mutual funds that investors utilize to invest in Internet-related ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center