Category: Investment Management

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