Hence, investors typically must use this most volatile asset class - equity funds - to pursue important goals that are more than five years away, such as retirement or children's education.

To an extent, you reduce your risks by investing in an equity fund, which is less volatile since it is a diversified portfolio of stocks. With wide ranging equity funds available today, they can be broadly classified into two categories based on the investment philosophy they pursue - "growth" and "value."

The two contrasting investment styles, growth-style investors and value-style investors emphasise on "growth" stocks and "value" stocks, respectively. In simple term, "growth" and "value" stocks differ based on how much the market is willing to pay for them. Growth stocks represent companies that can increaseearnings very rapidly. And because stock performance tends to follow earnings growth, growth stock prices can rise quickly. These are the firms that are doing everything right. They typically enjoy strong sales growth, a dominant market position, a healthy balance sheet, excellent product development capability, and talented management with a definite vision of where they want to go and how they plan to get there. Growth stocks can come from companies of all sizes in any industry.Growth managers generally look for fast-growing companies that have demonstrated records of above-average growth.

They believe the growth rates of these companies will allow them to outperform the stock market over time. Growth stocks tend to carry high price tags relative to what they are currently earning. The market is willing to pay more for them because they're from leading companies with a potential for consistent earnings growth, and may therefore give high returns in the future.

The job of growth manager is to determineif a stock price is justified, based on the company's potential for expansion.

Value stocks, on the other hand, are the misvalued bunch in the stock market. They tend to trade at low valuations versus the market, based on the issuing company's earnings, book value, assets, etc.

They trade at a discount to the market because the market believes there is no compelling reason to buy them. While that belief is often valid, there are enough exceptions - when attractive scrips are trading at a discount - to make investing in these stocks worthwhile.

Value managers look for stocks that are bargains based upon certain valuation criteria. They believe that the true value of a stock is not reflected in its price and, over time, its price will increase faster than stocks that are fully-priced. In general, the value style can be a more conservative approach for stock selection. Value stocks tend to be inexpensive relative to what they are currently worth at. The market isn't willing to pay more for them becausethey're from companies that are out of favour for some reason or another. The job of value managers is to identify companies poised for a turnaround, leading to rising earnings and higher stock prices.

Both styles have their proponents, but neither has been shown to provide consistently higher returns than the other does. A majority of the equity fund managers are growth investors. These include Apple, Alliance, Birla, DSP-MerriLl Lynch, ITC Threadneedle, Sun F&C and Kothari Pioneer. Based on their portfolios, the equity funds of Unit Trust of India and Templeton can be termed as value funds. What's important for stock investors to know is that both styles tend to run in cycles. One style may be in favour for a couple of years while the other is out of favour. So diversifying to include both among your stock holdings may help reduce the overall volatility of your portfolio over time.

It is important to remember that, regardless of whether the stocks you invest in are value or growth, they're still stocks.That means they'll be volatile over shorter time periods. But if you're a long-term investor who needs the growth potential of stocks in his portfolio, diversifying with both types can give you access to that potential, and may help limit volatility.