Mutual Fund Growth Vs Mutual Fund Dividend option


Are you confused while selecting mutual fund dividend or mutual fund growth option? Are you not clear how your selection will impact your investment portfolio?

Most of the mutual fund offers two schemes
1) Dividend option – Payout or ReInvest
2) Growth option

What does Mutual fund scheme mean?
Mutual fund dividend payout option – Declared dividend amount will be paid back to you and your fund value will be reduced by declared amount.
If AMC declared dividend of Rs 2 per unit and you have 100 Units with NAV of Rs 10 then you will get Rs 200 as dividend and fund value will be become Rs 800. So you will get your own money back after reducing from your fund value. This dividend amount will be tax free as of now.

Mutual fund dividend ReInvest option – Declared dividend amount will be reinvested in same portfolio and NAV will be reduced by declared amount.
If AMC declared dividend of Rs 2 per unit and you have 100 Units with NAV of Rs 10 then the fund NAV will be become Rs 8 and you will get additional units of Rs 200 with NAV of Rs 8(25 units more). So your total numbers of Units will be increased and fund value will be remaining same. Hidden clause – Every reinvestment transaction will have separate lock in period.

Mutual fund Growth option
The fund value and NAV will grow based on mutual fund investment performance. It does not depend of dividend declared. So, for same mutual fund scheme, NAV of growth option will be higher then dividend option.

Should I buy Mutual fund dividend or growth?
It depends purely and only on your investment decision.
Growth Option - If you are investing for wealth creation in long run
Dividend Payout option - If you are investing for regular or infrequent income
Dividend reinvestment option – I suggest never because it does not serve any of the above strategies. Instead go for Growth Option

Should I buy dividend payout option for ELSS or Tax saving mutual fund?
If you are thinking purely for tax saving perspective and does not believe in long term investment then you can consider dividend payout option. Again, I suggest you should consider growth option because ELSS or tax saving Mutual fund has lock in period of only 3 years. So you can get entire fund value at one time.

Does Growth option give higher retunes than dividend option?
You can not predict which fund option will perform better than other.It is driven by equity market trends.
Let’s assume your current portfolio worth Rs 10000
Case#1 you get dividend of Rs 3000 and remaining fund value Rs 7000.The Equity market crashed from next day then only Rs 7000 will be reduced to lower fund value
 So dividend options worked for you. If you have chosen growth fund then Rs 10000 will be reduced to lower fund value.
Case#2 you get dividend of Rs 3000 and remaining fund value Rs 7000.The Equity market grows up drastically from next day then only Rs 7000 will be increased to higher fund value. So dividend option did not work for you to get benefits of Bull Run of equity market. If you have chosen growth fund then Rs 10000 will be increased to higher fund value.

So, understand your goals before selecting mutual fund growth or dividend option. Do not think about short term gain and plan for long term gains.
I suggest Mutual fund investment through SIP in Growth fund.