Most investors has the common confusion in selecting a proper option while starting Mutual Fund investment. Mainly there are three options
1. Growth
2. Dividend
3. Dividend Reinvestment.
Growth Option: Here the fund house will invest all the available returns into the selected companies itself. This will help to produce more returns from the equity market. Investors who want to get good return in a long term should go for growth option only.
Dividend Option: Here the fund manager will declare a dividend for your investment quarterly or yearly. the dividend distribution will actually reduce the NAV of each unit. Hence one may get the return regularly but there wont be any significant capital appreciation. One should go for Dividend option if he need a regular return. Also keep in mind that Fund house may not declare dividends all the time.
Dividend Reinvestment Option: This is little bit complex. As per the logic fund house will reinvest the dividend offered into the same fund rather than giving it to the customer. This may some times give better return than the growth option.
Dividend reinvestment:
ReplyDelete"This may some times give better return than the growth option."
could you please clarify on this point?
thanks for the post.
A slight difference between Dividend Reinvestment v/s Growth is decided based on the tax policy. Now there is divident distribution tax and hence Growth option is a clear winner. If tomorrow if long-term capital gains tax is imposed, Growth can't touch Dividend Reinvestment.
ReplyDeleteSource:
http://www.moneycontrol.com/news/mf-experts/dividend-reinvestment-vs-growth-%E2%80%93-let-your-taxes-decide_224249-0.html