Individuals invest in different types of mutual funds that suit their specific financial goals. While some investors may be interested in a stable income from a low risk investment, others may be interested in a more aggressive investment aimed at gaining high growth and capital appreciation. It is important to clearly understand various investment options and funds available when deciding on where to invest funds so that your financial goals can be best achieved. Growth funds and income funds are two such forms of investment options. The article offers a clear overview of each type of mutual fund and explains the similarities and differences between growth and income funds.
What is Growth Fund?
Growth funds are portfolios of stocks, bonds and securities that have been pooled together due to their high growth perspectives and high potential for capital appreciation. Growth funds may not provide an income to their investors in terms of dividends or interest payments. This is mainly because growth funds will invest in the stocks of companies that aim at achieving higher growth and so income will be reinvested to the fund with plans for expansion and further growth in terms of acquisitions, research & development, expand production facilities, etc. Growth funds are known to carry higher risk as they are growing firms and are more sensitive to market conditions. However, the return of investing in a growth fund can be substantial, and if the investment goes as planned financial benefits to the investor through growth and capital appreciation can be quite significant.
What is Income Fund?
Income funds are portfolios of securities that aim to generate regular income, on a monthly or quarterly basis for their investors. Individuals who invest in income funds aim generally at holding their investment to gain a regular income. Income funds will invest mostly in stocks of companies that distribute their profits as dividend payments to their shareholders. Since income funds invest in income generating stocks and securities, investment in an income fund is generally considered to be of lower risk. Income funds will generally invest in high quality bonds, dividend paying shares and other income generating securities. Furthermore, income funds do not usually invest in debt instruments that mature in the short term.
What is the difference between Growth and Income Funds?
Mutual funds are investments that pool money from a number of investors and invest in a range of financial securities. There are various types of mutual funds such as growth funds and income funds. The main similarity between growth fund and income fund is that the aim of both growth and income funds is to offer financial gains to its investors and to offer a good return for the risk and cost borne by them.
The main difference between growth fund and income fund lies in the financial goals of each fund. While growth funds aim to generate capital appreciation through high levels of growth and capital reinvestment, income funds aim to generate a steady and regular income by investing in financial securities that offer regular payouts to shareholders and investors. Income funds are less risky and are more suited to risk-averse investors who are interested in earning a regular income. Growth funds are considered to be riskier and are suitable to aggressive investors who do not mind holding on to their investment for a longer period of time with the aim of making a larger capital gain.
Summary:
Growth vs Income Funds
• Mutual funds are investments that pool money from a number of investors and invest in a range of financial securities. There are various types of mutual funds such as growth funds and income funds.
• Growth funds are portfolios of stocks, bonds and securities that have been pooled together due to their high growth perspectives and high potential for capital appreciation.
• Growth funds may not provide an income to their investors in terms of dividends or interest payments.
• Income funds are portfolios of securities that aim to generate regular income, on a monthly or quarterly basis for their investors.
• Individuals who invest in income funds generally hold their investment with the aim of gaining a regular income.
• The main similarity between growth fund and income fund is that the aim of both growth and income funds is to offer financial gains to its investors and to offer a good return for the risk and cost borne by them.
• The main difference between growth fund and income fund lies in the financial goals of each fund. While growth funds aim to generate capital appreciation through high levels of growth and capital reinvestment, income funds aim to generate a steady and regular income by investing in financial securities that offer regular payouts to shareholders and investors.