Difference between Dividend payout, reinvestment and growth option in mutual funds

Mutual fund investors have two primary choices:

• Growth Option: This option reinvests any profits into the mutual fund scheme. Key features include:

• Profits accumulate within the scheme, impacting the Net Asset Value (NAV).
• No dividends are distributed to investors.
• Dividend Option: The dividend option offers regular income to investors by returning a portion of the investment as dividends. Key features are as follows:
• Dividends are periodically distributed.
• Investors can choose to receive dividends as income or reinvest them to purchase more fund units.
• Dividends are paid from the NAV.
• The amount and frequency of dividends are not guaranteed.

There are two types of dividend options:

• Dividend Payout Option: Profits are given to unit holders as dividends.
• Dividend Reinvestment Option: Dividends are reinvested to acquire new fund units.

Choosing between dividend payout, dividend reinvestment, or growth depends on your financial goals:

• For long-term wealth accumulation, growth or dividend reinvestment options are suitable.
• Dividend payouts may reduce long-term wealth unless reinvested.
• Consider tax implications, as dividends are often tax-free.
• Equity mutual funds can yield attractive returns when held for over five years.
• A growth option is advisable for accumulating funds for various goals.
• Dividend payout is ideal for regular income, especially with debt funds.

Debalina Roy Chowdhury Dilzer Consultants