What is the difference between a growth and a value mutual fund?
Growth-oriented mutual funds seek to invest in companies with rapidly growing sales and earnings. These companies tend to have higher share prices relative to their earnings. The expectation is that their earnings will grow quickly and bring them to a price level comparable to other companies. These shares carry extra risk when they fail to meet these expectations of growth, and share prices have been known to plunge rapidly. However, these companies have a tendency to appreciate rapidly when they repeatedly show strong growth (like Microsoft). The smaller earnings of these companies mean they are making less money, and their rapid growth means they need to hold onto profits for reinvestment. The result is that these companies tend not to pay dividends. Growth managers have several different styles, including “earnings momentum,” “emerging growth,” and “growth-at-a-price” which describe the types of stocks these managers look for. Value-oriented mutual funds tend to invest in companies
