What are Aggressive Growth Funds
A mutual fund that seeks the highest capital gains by investing in the shares
As per SEBI, an aggressive growth fund must invest a minimum of 65%
A mutual fund that seeks the highest capital gains by investing in the shares of growth company stocks is known as an aggressive growth fund. Aggressive Growth Funds are also known as maximum capital gains funds or capital appreciation funds. Capital gain refers to the hike in the value of a capital asset when the asset is sold.
Aggressive growth funds come with unique investment strategies and provide some of the highest returns in equity markets. These funds usually invest in companies with high growth potential, earning above-average market returns, including newer companies and those in hot sectors of the economy. When markets are rising, these funds are actively managed to achieve above-average returns.
What is a Growth Stock?
A growth stock is any share in a company that is expected to grow significantly above the average growth rate for the specified market and earn faster than the market average. These stocks usually do not pay dividends. Instead, the issuers of growth stocks companies reinvest earnings to accelerate growth in the short term. Investors invest in growth stocks to earn money through substantial capital gains by selling their shares in the future.
Relationship between Stock Market & Aggressive Growth Funds
The Stock Market and Aggressive Growth Funds usually have a substantial positive correlation, and these funds have significant betas. Therefore besides having high growth potential, these funds also carry considerable risk, and they are usually coupled with greater share price volatility. It means that usually, during economic upswings, they produce outstanding results and underperform during economic downturns.
The asset allocation of Aggressive Growth Funds
As per SEBI, an aggressive growth fund must invest a minimum of 65% and a maximum of 80% of the fund’s assets in equities and 20% to 35% in debt instruments. Therefore this makes these funds not as risky as purely equity schemes.
How does an Aggressive Growth Fund work?
These mutual funds invest in equity securities and other stocks that generate excellent returns. The investment made in these stocks is usually bought and also sold quickly to make profits that can be reinvested in the same fund or given as distribution payments to the investors. Aggressive growth fund managers typically look for capital appreciation to raise the value of portfolios. As these mutual funds can generate high capital gains, they should be included in the diversified investment portfolio of an investor, at least in a small portion.
How to monitor Aggressive Growth Funds?
The primary goal of these mutual funds is to invest money to earn high capital gains. Hence, there are higher levels of risk in comparison to other typical growth funds. In an aggressive growth fund, future calculations for investment are done based on different financial assumptions made for various stages of economic growth.
There are three main risk metrics related to these mutual funds known standard deviation, Sharpe Ratio, and Beta. One should monitor these risk metrics of such funds regularly. As an investor, one can get a clear understanding of the various risks of the fund with the help of these metrics and can manage it well.
Who can invest in Aggressive Growth Funds?
An individual looking for returns higher than average can invest in aggressive growth funds. These mutual funds invest in stocks with dynamic goals to perform better than regular growth funds and achieve higher revenues than traditional growth stocks.
Aggressive growth funds offer high returns but also come with considerable risks. In a bull market, these funds attain great gains but go through significant losses in a bear market, though not as high as in the case of equity funds. Therefore, they should not be taken by risk-averse investors. In fact, it is best suited for those investors who can take on risks. Younger people with more time to invest are better suited for aggressive growth mutual funds.
To sum up, aggressive growth funds give some of the highest-earning opportunities, but you need to be sure of your risk tolerance. These mutual funds, to an extent, are impulsive, unpredictable in nature and hence, risky. Consult an advisor to go ahead safeguarding your portfolio.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh