What is a Growth and Income Fund?

A growth and income fund is a type of mutual fund that is intended to benefit investors in two ways. This type of fund is used to provide capital growth while also producing income in the form of dividends. It is often the choice of middle-of-the-road investors who are reluctant to focus on one type of goal for their mutual fund investments. These people would rather take a combination approach to seeking capital gains and cash generation rather than opting for income funds, which may be considered conservative investments, or growth funds, which may be considered more aggressive.

Before a person can understand what a growth and income fund is, he may do well to learn how mutual funds work. Mutual funds are investment tools that pool money from many investors in order to invest in a range of securities and investment instruments. Each investor receives a portion of the fund's gains and may suffer proportional losses if investments are poor. Mutual funds are professionally managed and are often the choice of smaller investors who don’t have huge sums of money to invest but want to benefit from a diversified, managed portfolio.

In most cases, growth and income funds invest in large companies that are very well established in their industries. The reason for this is that these companies tend to be established enough to pay regular dividends. A company that is on shakier ground may be inconsistent in terms of not only dividend payments, but also share price fluctuation. In contrast, more-established companies of significant size often provide increasing share prices along with regular income. These funds may also invest in high-yield bonds as well and include at least some cash that is kept in money market accounts.

If an individual is seeking dramatic growth or huge amounts of income, a growth and income fund may not be the best option. These funds are often considered better options for investors seeking modest results and somewhat safer investments. For example, a person who invests in a growth and income fund may note that share prices tend to rise at a slower rate than with a more aggressive type of investment. The trade off for this, however, is that share prices are less likely to fall dramatically. Likewise, income may be lower but is more likely to be steady. Additionally, a person with a high level of dividend income may face more tax consequences than someone who receives lower but steady income from a growth and income fund.