Posted in Finance, Accounting and Economics Terms, Total Reads: 460
Definition: Aggressive Growth Fund
Aggressive Growth Fund is a name for mutual funds which give a very high return on investments but also carry an equally higher risk. The invested stocks are high growth potential stocks which are the stocks of companies that are expected to grow at faster rate than the overall market, mostly complemented by high share price volatility. The funds are for risk loving investors willing to accept a high risk-return tradeoff.
Aggressive growth funds tend to have betas greater than one, which means they have positive correlation with the market index. The intention is to buy number of high growth stocks and quickly sell it to capture profits which are either reinvested or are distributed among the investors. In this respect, aggressive growth funds aim to increase their portfolio value through capital appreciation They also commonly invest in derivatives, such as options, in order to lift their profits.
For example: an aggressive growth fund will typically invest in small cap and mid cap companies, with high growth potential combined with IPOs of startup companies and quickly sell the share to gain profits through capital appreciation and will not depend on dividend income. It will have a beta of greater than 1, typically more than 1.1. It is not for a risk averse investor and one should invest in it if one can afford to lose the value of one’s investment. One should have an appetite for risk and be patient as over the long term, they tend to give good returns. For the purpose of diversification also, an investor can look at aggressive growth funds.