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A growth fund is a mutual fund which invests in the stocks of the companies which are expected to grow at a rate faster than the overall stock market. The primary goal of growth funds is capital appreciation. They do not seek to invest in the stocks of the companies which have high-dividend payouts (this is the prime focus of dividend-yield funds). Nor do they go after value stocks – companies which have relatively undiscovered potential.
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Growth funds are capable of giving investors significantly high returns in a bullish market. However, growth funds may result in losses during bearish market conditions. Thus, growth funds come with a relatively high amount of risk.
Read here : Top 10 ELSS Mutual Funds to Invest in 2021
Features of Growth Fund
- High Returns: Growth funds invest in high-growth stocks. These are typically the companies which are growing faster than the market and which are rapidly growing their earnings.
- Ideal for Medium Investment Horizon: Growth funds are an ideal investment instrument for investors who want to invest their money for a medium to long term (more than 3 years). Investors willing to remain invested for an even longer tenure (more than 5-7 years) should ideally choose value funds.
- High Risk: Growth funds are a high-risk investment instrument as their performance heavily depends on volatile stock market conditions.
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Growth Funds Vs Growth Option Of Mutual Funds
All mutual funds come in 2 variants – growth and dividend. The growth option gives returns in the form of rising values of mutual fund units. In tax terms, this translates into long term capital gains and short term capital gains. The dividend option gives returns by paying periodic dividends. In tax terms, this translates to dividend income.
Also Read: Growth vs Dividend – Which is a Better Mutual Fund Option?
Growth funds are different from the growth option of mutual funds. While growth option is a variant of a mutual fund plan, growth fund is a type of mutual funds. Thus, like other mutual funds, growth funds also come in 2 variants – growth and dividend.
Growth Funds v/s Value Funds v/s Dividend-Yielding Funds
Growth Funds: These funds invest in stocks of companies which are growing rapidly and outpacing the market.
Value Funds: These funds invest in the stocks of relatively undiscovered companies which have the potential of growing in value in the near future.
Dividend-Yielding Funds: These funds invest in stocks of companies which are capable of providing high dividends at regular intervals.
Who Should Invest In Growth Funds?
Investors who are willing to bear a moderately high amount of risk for high returns and who do not wish to get involved in the researching and selection of stocks should ideally invest in growth funds. It is an ideal investment option for investors with medium term investment horizon.
Growth Funds Taxation
Growth funds generate returns more in the form of capital gains than dividends because fast growing companies tend to pay relatively low dividends. Capital Gains and dividends are taxed differently and during long term capital gains taxation in mutual funds becomes more favourable than taxation rules applicable to mutual fund dividends.
Dividends are subject to a 10% Dividend Distribution Tax (DDT) regardless of holding period. With respect to capital gains tax, the short-term capital gains tax on equity funds is 15% and the long-term capital gains tax on equity funds is 10%. However, long-term capital gains on equity mutual funds are also exempt up to Rs. 1 lakh per annum (this exemption is not available for dividends).
Also Read: Taxation of Mutual Funds
Here is a List of Growth Mutual Fund Schemes to Invest in FY 2021:
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| Fund Name | Fund Assets (Cr) | 1 Year Return | 3 Year Return | 5 Year Return |
| Axis Bluechip Fund – Direct Plan | 8749 | 22% | 21% | 11% |
| Mirae Asset Tax Saver Fund – Direct Plan | 2671 | 18% | 20% | – |
| Axis Midcap Fund – Direct Plan | 3551 | 18% | 19% | 12% |
| Axis Bluechip Fund – Growth | 8749 | 21% | 19% | 10% |
| Axis Long Term Equity Fund – Direct Plan | 21492 | 18% | 18% | 12% |
| Invesco India Growth Opportunities Fund – Direct Plan | 1991 | 14% | 18% | 12% |
| Axis Midcap Fund – Growth | 3551 | 16% | 18% | 10% |
| Mirae Asset Tax Saver Fund – Regular Plan | 2671 | 16% | 18% | – |
| Mirae Asset Emerging Bluechip Fund – Growth | 8868 | 16% | 17% | 16% |
| Kotak India EQ Contra Fund – Direct Plan | 874 | 14% | 17% | 11% |
| Canara Robeco Bluechip Equity Fund – Direct Plan | 257 | 18% | 17% | 10% |
| HDFC Index Sensex – Direct Plan Growth | 399.64 | 18% | 17% | 9% |
| Nippon India Index Fund Sensex Plan – Direct Growth | 22.55 | 18% | 17% | 8% |
| Mirae Asset Large Cap Fund – Direct Growth | 13064.85 | 16% | 17% | 13% |
| Tata Index Sensex Direct Plan | 12.11 | 18% | 17% | 9% |
| Axis Small Cap Fund – Direct Plan | 1200 | 23% | 16% | 13% |
| IIFL Focused Equity Fund – Direct Plan | 446 | 29% | 16% | 12% |
| JM Multicap Fund – Direct Plan | 143 | 19% | 16% | 11% |
| Axis Long Term Equity Fund – Growth | 21492 | 17% | 16% | 11% |
| JM Tax Gain Fund – Direct Plan | 35 | 16% | 16% | 11% |
| Invesco India Growth Opportunities Fund – Growth | 1991 | 13% | 16% | 10% |
| Canara Robeco Bluechip Equity Fund – Regular Plan | 257 | 16% | 16% | 9% |
| Canara Robeco Equity Diversified – Direct Plan | 1581 | 14% | 16% | 9% |
| Canara Robeco Equity Diversified – Regular Plan | 1581 | 13% | 16% | 8% |
| DSP Equity Fund – Direct Plan | 2888 | 20% | 15% | 10% |
| JM Tax Gain Fund – Growth | 35 | 16% | 15% | 10% |
| Kotak India EQ Contra Fund – Growth | 874 | 12% | 15% | 9% |
| Mirae Asset Hybrid Equity Fund – Direct Growth | 2037.71 | 15% | 15% | NA |
| Tata Retirement Savings Fund Moderate Plan – Direct Growth | 1100.88 | 13% | 15% | 13% |
| Mirae Asset Emerging Bluechip Fund | 8,219 | 18.27% | 14.40% | 17.53% |
| Axis Small Cap Fund – Growth | 1200 | 21% | 14% | 12% |
| IIFL Focused Equity Fund – Growth | 446 | 27% | 14% | 11% |
| DSP Equity Fund – Regular Plan | 2888 | 19% | 14% | 9% |
| Aditya Birla Sun Life Tax Relief 96 – Direct Growth | 8912.66 | 9% | 14% | 12% |
| Invesco India Mid Cap Fund – Direct Plan | 621 | 6% | 13% | 11% |
| Invesco India Infrastructure Fund – Direct Plan | 41 | 12% | 13% | 7% |
| L&T India Large Cap Fund – Direct Growth | 493.11 | 16% | 13% | 8% |
| DSP Equity & Bond Fund – Direct Growth | 6360.93 | 17% | 12% | 11% |
| SBI Small Cap Fund | 2,704 | 8.33% | 11.28% | 17.04% |
| Canara Robeco Emerging Equities Fund | 5,235 | 10.38% | 11.25% | 13.89% |
| Tata Mid Cap Growth Fund – Regular Plan | 747 | 10% | 11% | 9% |
| Invesco India Infrastructure Fund – Growth | 41 | 10% | 11% | 6% |
| LIC MF Infrastructure Fund – Direct Plan | 55 | 15% | 11% | 5% |
| HDFC Index Sensex Fund – Growth | 399.64 | -2% | 11% | 8% |
| ICICI Prudential Equity & Debt Fund | 23,487 | 8.11% | 10.41% | 10.65% |
| ICICI Prudential Balanced Advantage Fund | 27,956 | 12.79% | 10.40% | 10.37% |
| LIC MF Infrastructure Fund – Growth | 55 | 13% | 10% | 4% |
| HDFC Hybrid Equity Fund | 21,087 | 9.44% | 9.50% | 10.22% |
| PGIM India Dynamic Bond Fund | 42 | 13.69% | 9.32% | 10.08% |
| SBI Magnum Medium Duration Fund | 1,942 | 11.77% | 9.31% | 9.80% |
| Kotak Asset Allocator Fund | 42 | 11.09% | 9.29% | 9.12% |
| Franklin India Dynamic Accrual Fund | 4,012 | 9.51% | 9% | 9.98% |
| DSP Natural Resources and New Energy Fund – Direct Plan | 380 | 0% | 9% | 11% |
| Kotak Emerging Equity Scheme | 4,960 | 11.35% | 8.38% | 12.89% |
| ICICI Prudential All Seasons Bond Fund | 2,816 | 11.28% | 8.24% | 9.91% |
| Aditya Birla Sun Life Balanced Advantage Fund | 2,689 | 9.99% | 8.20% | 9.46% |
| Nippon India Small Cap Fund (earlier Reliance Small Cap Fund) | 8,425 | -2.60% | 8.14% | 11.82% |
| DSP Natural Resources and New Energy Fund – Regular Plan | 380 | -1% | 8% | 11% |
| Motilal Oswal Multicap 35 Fund – Regular Growth | 13634.94 | -10% | 8% | 15% |
| ICICI Prudential Bluechip Fund – Growth | 22182.14 | -6% | 8% | 9% |
| Tata Retirement Savings Fund Moderate Plan – Regular Growth | 1100.88 | -8% | 8% | 12% |
| Axis Strategic Bond Fund | 1,188 | 8.32% | 7.68% | 9.11% |
| SBI Magnum MultiCap Fund – Growth | 7582.94 | -5% | 7% | 12% |
| L&T Tax Advantage Fund – Growth | 3420.69 | -13% | 7% | 9% |
| Aditya Birla Sun Life Tax Relief 96 – Growth | 8912.66 | -13% | 7% | 11% |
| L&T India Value Fund – Growth | 8404.03 | -13% | 6% | 11% |
| DSP Equity Opportunities Fund – Growth | 5720.56 | -8% | 6% | 10% |
| SBI Bluechip Fund – Growth | 22754.43 | -6% | 5% | 10% |
Data as on 08th December 2019: Source- Value Research)
