- 1). Review the purpose of a growth fund, as there are different types. In general, a growth fund invests in companies that are established but still in the "growth" or expansion phase of a business cycle. Aggressive-growth mutual funds take on a little more risk and tend to invest in small- or mid-capitalization funds. (Capitalization is the total dollar market value of all of a company's outstanding shares.)
- 2). Go to Yahoo! Finance's mutual fund screener (see Resource) to research growth funds. In the "Category" box, scroll to any title with "growth" in the name. You can add additional criteria or leave everything else blank.
- 3). Request a prospectus for the growth funds you would like to compare. The most important factor in comparing funds is the return. For mutual stock funds, this is the NAV, or net asset value. It is equivalent to the earnings-per-share number used to compute a single stock's return. The NAV can be looked at for annual or quarterly growth. Also look at the NAV over a two-, three- and five-year period to gauge the fund's performance record over time.
- 4). Compare apples to apples. Growth stock mutual funds vary, so make sure you are comparing the same kind of funds. Comparing an aggressive-growth fund to a large-cap growth fund is not helpful because of the difference in fund objectives. Also, make sure the companies in the funds you're comparing have the same market capitalization.
- 5). Compare growth stock mutual funds over a three- to five-year period. This is the average amount of time an investor needs to hold equities before seeing a profit. Try to go with a growth stock fund with a successful track record of at least five to seven years. You will want to see how it performs in both bull and bear markets.
- 6). Contact your broker or the financial institution managing the fund to place an order to buy. You will need to know how many shares you want to purchase, based on your investment amount.
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