Growth and Income Fund

A growth and income fund is a type of mutual fund or exchange-traded fund (ETF) that employs a dual strategy to achieve both capital appreciation and current income.
Growth and Income Fund
3 min
30-July-2024
A growth and income fund is a type of mutual fund or ETF that aims to do two things: grow your investment over time and provide regular income. It seeks to achieve growth by increasing the value of the investments, while also generating income through dividends or interest payments.

Investment objectives are not simple targets. You may have different long-term and short-term goals, and no single investment can help you meet all your requirements. However, some investment vehicles can fulfil more than one goal in one go — and the growth and income fund is one such investment option.

Keep reading to find out more about what growth and income mutual funds are, how they work and how they meet the two objectives of long-term growth and income generation.

The meaning of growth and income funds

Growth and income funds are mutual fund schemes that are designed to meet two contrasting objectives — namely, that of long-term growth and income generation for investors. They invest in a mix of securities that help meet these two goals efficiently.

The growth is generally achieved by focusing on the stocks of companies that have the potential to grow significantly over the long term. Thereafter, to also meet the objective of income generation, these funds invest in securities that offer fixed income. Alternatively, they may also pay out dividends regularly to investors.

How growth and income mutual funds work?

Although investors can theoretically be classified as aggressive or conservative, most investors do not have such a strict approach to risk and returns. Generally, investors tend to have multiple goals like capital appreciation or wealth creation over the long term as well as generating additional income over the short term. In other words, investors mostly tend to have a balanced approach.

Growth and income funds help meet both these objectives. They focus partly on growth-oriented investments and partly on income-generating assets. So, by choosing just one investment vehicle, you can meet both these objectives in one go.

At the fundamental level, growth and income mutual funds work like other types of mutual funds. They pool together the capital from interested investors and purchase different assets that help meet these dual objectives. Thereafter, investors are allotted units in the mutual fund scheme based on the capital contributed. The NAV of the fund may change with time, depending on how the assets in the portfolio perform. If the NAV appreciates, it leads to capital appreciation or growth. Additionally, growth and income funds may also pay out dividends regularly to investors.

Decoding the growth strategy in growth income funds

The growth strategy in growth and income mutual funds involves selectively investing in equities that have the potential for substantial growth in the future. Typically, these funds target companies that are poised for expansion or are performing well in emerging sectors. Such companies generally also have strong fundamentals, high revenue growth prospects and an effective management team.

The careful selection of growth-oriented stocks is a key feature of mutual funds that offer growth and income benefits. By choosing such high-growth companies, growth and income funds aim for higher capital appreciation and also balance this with stabler, income-generating assets.

Decoding the income strategy in growth income funds

The income strategy in growth and income funds is all about generating steady cash flows for investors by focusing on fixed-income securities and/or paying dividends regularly. Such stable and regular payouts can be beneficial for investors looking for additional income to supplement their primary salary or earnings. It can also be beneficial for people who want to retire young.

The investments chosen to pursue this strategy in growth and income mutual funds include corporate bonds, government securities and other debt instruments. These assets are generally less volatile than equity stocks, so they bring some degree of stability to the fund’s portfolio.

Are growth and income funds suitable for you?

Growth and income mutual funds may be a suitable choice for your investment portfolio if:

You are looking for a balanced investment approach

You want to combine the benefits of potential capital growth with income generation

You want regular dividends or interest payouts

You want to build a diversified portfolio that mitigates risk to a certain extent

You need financial stability along with growth potential

You are planning for long-term financial goals

You seek the advantage of professional fund management by experts

You want to earn higher returns than those offered by purely debt-oriented funds

You want to take on less risk but still seek the benefit of market-linked returns

Conclusion

With this, we conclude our discussion on growth income mutual funds. If you want the dual benefits of potential capital growth and reliable income, these funds may be a suitable addition to your portfolio. However, to ensure that you find the ideal schemes that meet both these goals, you need to compare mutual funds before making a choice.

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Frequently asked questions

Are growth and income funds risky?
Mutual funds that focus on growth and income strategies do carry some risk, mainly from the growth aspect of the fund. The market-linked risk from equity investments is present in such funds.

What is an example of a growth and income mutual fund?
A common example of a growth and income fund is a scheme that allocates a portion of its portfolio to market-linked equity investments that bring in growth. Another portion is allocated to stabler fixed-income securities that bring income.

How are growth funds different from income funds?
Growth funds focus on investing in businesses that may potentially bring in capital growth over the long term. Income funds primarily aim to give investors the benefit of stable and regular income.

How does an income mutual fund work?
An income mutual fund typically invests in fixed-income securities and debt instruments that can provide investors with a steady stream of income.

What are the limitations of a growth and income mutual fund?
Some of the main limitations of growth and income funds include interest rate sensitivity, limited growth prospects, moderate levels of market risk and possibly higher expense ratios.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

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