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.