A growth fund is an investment option that seeks to provide investors with out-sized returns in exchange for notably high risk. Growth funds generally invest in companies with an expectation that their earnings and revenues will grow significantly faster than their industry peers and the overall market. These companies, which are usually classified by market capitalization, may be high-flyers like technology firms, small-cap upstarts, or mid-cap companies where revolutionary new products are in development.

Growth funds can be bought and sold in the same manner as traditional financial instruments such as mutual funds and exchange-traded funds (ETFs). As with any type of investment, there is an element of risk that comes with growth funds because of the speculative nature of their underlying investments. Before investing in a growth fund, investors should inspect the portfolio to ascertain whether it is well-suited to their level of risk tolerance, financial goals and investment horizon.

Investing in growth funds can provide long-term market participants with the opportunity to reap greater rewards than if they were to invest in a fund that followed a more conservative approach. Most growth funds make a long-term hold part of their strategy, but they also may occasionally offer quick-hit positions if the right opportunity presents itself. This can both provide a great opportunity for profitable returns or result in unwanted losses if the investment thesis falls through.

When evaluating a growth fund, investors should carefully research the holdings of the fund and review the past performance to determine whether it adequately meets the investor's financial goals. Investing in a broad-based growth fund instead of individual stocks reduces risk and increases diversification. However, it is important that growth fund investors understand the mutual fund's asset mix and trading methodology.

Growth funds can provide a great opportunity for investors who are looking for the potential for significant returns. Although there is an increased risk associated with these investments, careful scrutiny of the fund holdings and past performance can help investors to balance the risk and reward that comes with investing in growth funds.