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