Types of Mutual Funds: By Style of Investment

The investment styles of funds or fund managers may be of two types – Growth or Value

Value Funds

These funds buy stock in fundamentally sound companies whose shares are currently under-priced in the market and have been underperforming their potential, and thus are out of favor with investors. Value funds seek out such stocks because, owing to their depressed prices, they offer strong value. Value funds will add only those shares to their portfolios that are selling at low price-earnings ratios, low market to book value ratios and are thus believed to be undervalued compared to their true potential.

Growth Funds

Growth funds invest in companies whose earnings are expected to rise at an above average rate and are focused on stocks that have already registered a strong upward momentum. The strategy is to invest in companies with rapidly growing earnings in the hope that they will continue to grow. Stocks in growth funds tend to be expensive or have a high price-to-earnings ratio.

Growth funds are generally considered riskier and more volatile than value funds.

2 Responses to “Types of Mutual Funds: By Style of Investment”

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