Growth mutual funds invest in companies that are expected to experience high growth in the near future (rather than incremental growth over a longer term). Many different mutual funds fall under this category. Follow these steps to choose and invest in a growth fund.
Choose a Growth Fund
Choose by fund family. There are several large fund families managed by well-respected names in the mutual funds industry. One way to get started investing in growth funds is to stick with a fund family that you like and invest in the family's growth funds.
Invest in a sector. At any given time, certain market sectors experience faster growth than others. You can watch the market for hot sectors and move your investments to funds heavily weighted toward stock sectors that are experiencing rapid growth.
Choose funds by the types of stocks they invest in. Growth funds often invest in small-cap companies (companies with a relatively small market capitalization) because these companies typically grow faster than larger companies.
Compare and Invest in Growth Funds
Look for no-load funds. Financial experts generally agree that no-load funds offer a better deal to investors.
Read a prospectus. Investors should always read the prospectus for any fund they consider. Reading the prospectus will help you compare a fund with other growth funds.
Look at Morningstar ratings, which indicate how a particular fund compares to other growth funds. You can find Morningstar ratings on the Morningstar Web site (see the Resources section below).
Assess various factors, such as total expense ratio, length of time in operation and minimum investments required.
Open an account. Many fund companies have toll-free numbers that provide detailed information on how to start an account. This information is also often available in a fund's prospectus.
- Decide if you want to invest in funds that concentrate on international stocks. International stocks may offer a higher growth rate than U.S. stocks, and investing in international funds will diversify your portfolio. Be aware that international stocks have particular risks, including currency fluctuations.
- You often can download a prospectus from a fund company's Web site.
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