What Is a Growth and Income Mutual Fund?

Investors choose where to put their money based on their priorities. Some want growth, meaning the value of the investment itself rises over time. Some want income, meaning a steady cash flow generated by the investment. And of course, many want both. A growth and income mutual fund is one that tries to give its investors a middle ground by putting money into both growth stocks and income-generating investments.

Mutual Funds

Mutual funds are professionally managed investment pools. Investors buy shares of the fund, their money is pooled together, and the fund manager uses that money on a broad array of investments. What the manager invests in depends on the priorities of the fund. A good mutual fund frees investors from having to actively manage their money, and it reduces investment risk by diversifying the portfolio -- that is, spreading money around so investors aren't dependent on the ups and downs of just one or two investments.

Growth Stocks

In investor parlance, a "growth" stock is a company whose revenue and profits are rising faster -- or are at least seen as having the potential to rise faster -- than those of other companies in the same industry. This earnings growth translates into a higher value for the company, which in turn means the price of the stock goes up faster. An investor makes money off a growth stock by buying at one price and selling at a significantly higher price. As with any investment with a potential for high returns, the downside to growth stocks is higher risk: The stocks with the greatest potential for growth tend to be young companies, often in fiercely competitive, rapidly evolving industries.

Income Investments

"Income" investments produce a steady stream of cash, such as stock dividends or the interest on bonds. Income investments generally don't have the same potential for price appreciation as growth investments. What makes them attractive is the income they produce -- growth stocks usually don't pay dividends -- and their relatively low level of risk. Corporate and municipal bonds are fairly safe, as are the dividend-paying stocks of established, mature companies.

Growth and Income Funds

Managers of growth and income mutual funds try to balance the investments in their fund portfolios so they offer a middle ground between aggressive growth and guaranteed income. These funds appeal to investors with a moderate appetite for risk. Just about every major mutual fund company offers one or more growth and income funds.

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About the Author

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

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