Growth And Income Fund Definition (2024)

What Is a Growth And Income Fund?

A growth and income fund is class of mutual fund or exchange-traded fund (ETF) that has a dual strategy of both capital appreciation (growth) and current income generatedthrough dividends or interest payments. A growth and income fund may invest only in equities or in a combination of stocks, bonds, real estate investment trusts (REIT) and other securities.

A growth and income fund is a type of blend fund, which invests in both growth and value stocks.

Key Takeaways

  • A growth and income fund is a mutual fund or ETF strategy that seeks a total return for investors including capital gains and current income.
  • The goal of a growth and income fund is to create a diversified portfolio that takes advantage of the capital gains potential of the growth segment and the dividend income and stability of the value segment.
  • Because these funds come in many configurations, investors should research each potential fund strategy and use a style box for easier categorization.

Understanding Growth And Income Funds

Growth and income funds are popular among investors with moderate (but not excessive) appetites for risk – the ever-popular "balanced investor." Although returns will typically lag those of pure growth funds, sometimes high-yielding stocks become favored in the stock markets, driving growth and income funds to superior performance. The stability of these funds appears most attractive when the broad economy looks to be weakening.

Growth and Time Horizons

Investors in growth and income portfolios favor stability without forsaking returns that outpace inflation. Depending on risk tolerance, a balanced investment objective is adopted by individuals who either shun volatility completely or scale back growth objectives as retirement approaches. When planning investment strategies, the age of an investor is vital in determining asset allocation and risk tolerance. A 25-year-old investor initially entering the workforce holds a longer time horizon than a 70-year-old retiree. Investment advisers suggest that regardless of age, exposure to equities is a necessary for any portfolio.

However, the percentage of equity exposure shifts as time horizons shorten. A rule of thumb among financial professionals holds that growth allocations decrease as an investor ages. If individuals subtract their ages from 100, the remainder represents the percentage of stocks they should hold, with the balance in less volatile bonds and cash.

Investors can select from numerous funds that meet balanced objectives. Portfolios such as the John Hancock Balanced Fund ("SVBAX") exemplify low volatility with an average annual return of 5.49% for 10 years through Dec. 31, 2018, falling short of theS&P 500 Index, which returned 8.5% over the same time frame.

Income and Retirement Needs

The investment objective of a retiree involves income needs, a scenario in which earnings are replaced by personal savings and dividend and interest income. Financial advisers recommend that retirees replace 75% of working wages with income-producing securities such as bonds and large-cap dividend-paying equities.

A balanced fund holds a considerable allocation of corporate and government bonds offering semi-annual interest payments while seeking to preserve capital. The less-volatile nature of U.S. Treasuryand investment grade bonds couple with the growth potential of stocks, providing income and a potential rate of appreciation to combat rising prices of goods and services ensuring that an individual does not outlive his or her retirement savings. Growth and income funds fulfill both objectives within a single security.

Examples of Growth and Income Funds

The Dodge and Cox Balanced Fund ("DODBX") chalked up an annual average five-year return of 16.3% and a trailing 12-month yield of 1.94% as of Dec. 31, 2018, a measure that exceeds the S&P 500's 15.79% growth. However, its yield dropped below the yield on the 10-year Treasury, which ended the year around 2.409%.Thus, growth and income funds fulfill dual investment objectives under one roof under certain circumstances, such as when interest rates are low.

Though they have the same objective of growth and income, investors should be aware that, just like other types of mutual funds,each fund will have a bias in its investment strategy. For instance, the Dodge & Cox Balanced Fund leans toward value stocks, seeking securities that appear undervalued by the market. Other funds may highlight either the growth or income side of the equation, or have higher exposure to bonds. Also, though these funds are considered a low-volatility category, some have more than others. For example, theVanguard Growth and Income Fund Investor Shares ("VQNPX") is lists a key risk as volatility due to its full exposure to the stock market.

Growth And Income Fund Definition (2024)

FAQs

What is the meaning of growth and income fund? ›

What Is a Growth And Income Fund? A growth and income fund is class of mutual fund or exchange-traded fund (ETF) that has a dual strategy of both capital appreciation (growth) and current income generated through dividends or interest payments.

What does growth fund mean? ›

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, or research and development (R&D).

What is the meaning of income fund? ›

An income fund is mutual fund or a ULIP (unit-linked investment plan) or any other type of investment that aims at generating an income stream for investors by investing in fixed income securities like government securities or gsecs/gilts, bonds, debentures, fixed deposits and the like.

Which is better growth or income funds? ›

Broadly speaking, growth funds aim to increase the value of your investment over time. As a result, they can often favour faster-developing companies at early stages in their development. Income funds, meanwhile, will target a steady stream of income – as their name suggests.

How does growth fund work? ›

A growth fund is a mutual fund invested mostly in companies with above-average growth, with the goal being capital appreciation rather than yield income and dividend payouts. A growth fund is expected to appreciate more over the long term than the broad market.

How does an income fund work? ›

Income funds pay any profits directly to the investor as cash. These funds will use the initials 'Inc' for income or 'Div' for dividend in the fund name. Growth funds automatically reinvest any profits back into the fund. This helps the fund grow over time.

What is the difference between a growth fund and a balanced fund? ›

A growth fund invests in securities known as growth stocks. These funds are normally the ideal investment for individuals saving for retirement. Balanced funds, on the other hand, are characterized by how they systematically sell high-performing assets and buy underperforming assets.

What is income fund in mutual funds? ›

Income funds are mutual funds or ETFs that prioritize current income, often in the form of interest or dividend-paying investments. Income funds may invest in bonds or other fixed-income securities as well as preferred shares and dividend stocks.

What is High income fund? ›

The BlackRock Dynamic High Income Fund is a global multi-asset strategy that aims to provide investors with the potential for high income and positive total return. The Fund achieves this outcome by investing across stocks, bonds and “complementary income asset classes”.

Is income fund a good investment? ›

Income fund pros

Investing in income funds can offer you broad or narrow exposure to specific asset classes. Since you're buying multiple investments in a single fund, that could make diversifying your portfolio easier. Stable income payouts. A good income fund generates income for investors on a regular basis.

What are some growth and income mutual funds? ›

The Best Growth and Income Mutual Funds
  • #1 Fidelity Large Cap Growth Index Fund.
  • #2 AB Large Cap Growth Fund.
  • #3 VanEck Vectors Low Carbon Energy ETF.
  • #4 Manor Investment Funds Growth Fund.
  • #5 Invesco KBW Property & Casualty Insurance ETF.
Jul 6, 2022

Are growth funds good investments? ›

Growth funds can be an important component of a well-balanced portfolio. July 15, 2022, at 3:09 p.m. With a long-term approach, the right growth funds can help investors beat inflation. Beating inflation should be the main goal of every investor.

What is the difference between income and growth investments? ›

Growth investors want all earnings kept in the asset since this allows the investment to grow faster while income investors want profits returned as a form of income.

How do you calculate growth fund? ›

FV = Future value or the amount you get at maturity. For example, you invest Rs 1,000 a month in a mutual fund scheme using the systematic investment plan or SIP route. The investment is for 10 years, with an estimated rate of return of 8% per year. You have i = r/100/12 = 8/100/12 = 0.006667.

When should you invest in a growth fund? ›

Growth funds are mutual funds or ETFs that hold stocks of companies expected to grow more quickly than the stock market. Growth funds see the best performance right before the business cycle peaks. For this reason, many investors try to time their growth fund purchases.

How much does an income fund pay? ›

Basics of the Income Replacement FundsSM

Payout rates will vary, with the 2020 fund paying out perhaps as much as 16% a year, while the 2041 fund may payout 4% a year. Check Fidelity's website for details on the funds and their current distribution schedules.

Do income funds pay dividends? ›

All funds are legally required to distribute their accumulated dividends at least once a year. Those that are geared towards current income will pay dividends on a quarterly or even monthly basis. But many others only pay out dividends on an annual or semiannual basis in order to minimize administrative costs.

Do growth funds pay dividends? ›

Mutual Funds With a Growth Option

The growth option on a mutual fund means that an investor in the fund will not receive any dividends that may be paid out by the stocks in the mutual fund.

What is the difference between growth and value? ›

Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.

What is an example of a growth investment? ›

Examples of Growth Investing

Portfolio A consists of blue chips and growth stocks, while portfolio B consists of defensive stocks. read more, whose profitability. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.

What are income funds examples? ›

The table below shows the top-performing FMPS:
Fund3-Year Performance5-Year Performance
SBI Magnum Income Fund Regular Growth8.83%9.07%
Aditya Birla Sun Life Income Fund Regular Plan Growth8.82%9.07%
Canara Robeco Income Fund Regular Plan Growth8.82%9.07%
HDFC Income Fund Growth8.82%9.07%
2 more rows

Who should invest in income fund? ›

Investors who have an investment horizon of 1-3 years may consider income funds to invest their short-term surplus funds. You need to time your entry and exit properly to get the maximum out of these funds. The ideal time to enter would be at lower interest rates and exit as the interest rates start rising.

What are 3 types of mutual funds? ›

Different Types of Mutual Funds
  • Equity or growth schemes. These are one of the most popular mutual fund schemes. ...
  • Money market funds or liquid funds: ...
  • Fixed income or debt mutual funds: ...
  • Balanced funds: ...
  • Hybrid / Monthly Income Plans (MIP): ...
  • Gilt funds:

What is Monthly income fund? ›

A monthly income plan (MIP) is a type of mutual fund strategy that invests primarily in debt and equity securities with a mandate of producing cash flows and preserving capital. An MIP aims to provide a steady stream of income in the form of dividend and interest payments.

What is an income portfolio? ›

Therefore, an income portfolio is any combination of investments, loans, real estate, or securities. They are grouped by an investor. With the objective of generating income from interest, dividends, and capital gains for the owner.

Are income funds liquid? ›

Mutual funds are considered liquid since investors can sell their shares at any time and receive their money within days.) Money-market funds, a type of mutual fund that invests in low-risk low-yielding investments like municipal bonds (Similar to mutual funds, money market funds are also liquid investments.)

What is the safest investment with highest return? ›

9 Safe Investments With the Highest Returns
  • Certificates of Deposit.
  • Money Market Accounts.
  • Treasury Bonds.
  • Treasury Inflation-Protected Securities.
  • Municipal Bonds.
  • Corporate Bonds.
  • S&P 500 Index Fund/ETF.
  • Dividend Stocks.
May 23, 2022

What are 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

Should you sell growth funds? ›

Growth stocks have outperformed the market since the financial crisis. Instead of jumping into what's hot, it's better to invest in companies that suit your risk tolerance. The growth stock sell-off could be a buying opportunity for patient investors.

Are growth funds good investments? ›

Growth funds can be an important component of a well-balanced portfolio. July 15, 2022, at 3:09 p.m. With a long-term approach, the right growth funds can help investors beat inflation. Beating inflation should be the main goal of every investor.

Are growth mutual funds safe? ›

Because growth mutual funds are usually made up of many different stocks, your investment, in essence, is instantly diversified. In general, price movement for a growth mutual fund may be less volatile than an individual stock. But diversification doesn't mean safety.

What is the difference between growth fund and balanced fund? ›

Lesson Summary. Growth mutual funds invest in stocks with expectations of strong future growth and price appreciation. Balanced mutual funds invest in stocks and other asset classes like bonds.

Is an income fund a mutual fund? ›

An income fund is a mutual fund or exchange-traded fund (ETF) that seeks to generate current income through dividends or interest payments. Some also provide an opportunity for capital appreciation.

Which is the best growth fund? ›

Aggressive growth funds are schemes that offer high returns and come with high risks.
...
What you should be aware of regarding aggressive growth funds.
Name of fundMirae Asset Emerging Bluechip Fund - Regular Plan
Market cap (in crore)25,787.10
1-year return12.54
Net assets (in crore)5,006
Turnover72.00
8 more columns

Why should I invest in a growth fund? ›

The key characteristics of growth funds are as follows: Higher priced than broader market. Investors are willing to pay high price-to-earnings multiples with the expectation of selling them at even higher prices as the companies continue to grow. High earnings growth records.

When should I invest in a growth fund? ›

Growth funds are mutual funds or ETFs that hold stocks of companies expected to grow more quickly than the stock market. Growth funds see the best performance right before the business cycle peaks. For this reason, many investors try to time their growth fund purchases.

How do I choose a growth fund? ›

Here are seven tips to help you select the best mutual funds for your needs.
  1. Consider your investing goals and risk tolerance. ...
  2. Know the fund's management style: Is it active or passive? ...
  3. Understand the differences between fund types. ...
  4. Look out for high fees. ...
  5. Do your research and evaluate past performance.
Mar 28, 2022

What are the 4 types of mutual funds? ›

Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.

What fund has the highest return? ›

Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks — and different categories of stock mutual funds carry different risks.

What is a balanced income fund? ›

Balanced funds are mutual funds that invest money across asset classes, including a mix of low- to medium-risk stocks and bonds. Balanced funds invest with the goal of both income and capital appreciation.

Which is the best fund? ›

Here's the list of the five best mutual funds for SIP:
Fund Name3-year Return (%)*
Mirae Asset Emerging Bluechip Fund Direct-Growth20.60%Invest
Canara Robeco Bluechip Equity Fund Direct-Growth16.86%Invest
SBI Focused Equity Fund Direct Plan-Growth15.88%Invest
Edelweiss Large & Mid Cap Direct Plan-Growth18.01%Invest
3 more rows

What is a large growth fund? ›

Large-growth funds invest in stocks of big U.S. companies that are projected to grow faster than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large-cap.

Who should invest in income fund? ›

Investors who have an investment horizon of 1-3 years may consider income funds to invest their short-term surplus funds. You need to time your entry and exit properly to get the maximum out of these funds. The ideal time to enter would be at lower interest rates and exit as the interest rates start rising.

Are income funds Low risk? ›

Income funds are often considered lower risk than funds that prioritize capital gains.

What are the 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

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