123ArticleOnline Logo
Welcome to 123ArticleOnline.com!

ALL Education >> View Article

Dividend, Growth Or Reinvestment Option?

By Expert Author: Artham Vidya

If you have ever invested in mutual funds you would have noticed, while filling out the application form that you are offered choices dividend option or growth option.

What you opt for depends on what your goals are and whether you want an income from your investment or you are looking for capital appreciation. If you want some money, in return you can go in for the dividend option, but if you are looking for your capital to grow, then you can opt for the growth option.

Let me tell you what happens in a dividend option.

Suppose you buy a unit in a mutual fund for Rs 10/. After some time the price goes to Rs 12, that is, there is an appreciation in your investment by Rs 2. In a dividend option, the scheme will pay out that appreciated amount as dividend to investors. The value of your investment therefore remains the same, because you already have the dividend in your hands.

If you opted for the growth option, on the other hand, then there is no payout by the fund, but your capital will have appreciated. You can wait for more appreciation from the scheme and exit when you wish to.

There is a third option offered by funds. Dividend is declared and then reinvested automatically by the fund at the prevailing price. This again is another way of capital appreciation since you are not taking away the income but putting it back in the scheme.

Unless you are really hard-up for cash, I would suggest that you should ideally opt for the growth or the dividend reinvestment options. They are the best ways for wealth creation.

Another aspect you have to consider is that of taxation. Dividend from equity funds is exempt from tax in the hands of the investors. On other types of funds, the income is subject to dividend distribution tax, which the fund has to pay to the government and realises it from the investor.

Tax on capital gains (which you will get under the growth option) depends on whether you exit within a year from investment or hold it longer than a year. Short-term capital gains are taxed at 15 percent while there is zero tax on long-term capital gains.

So next time you see the choices on your application form, think carefully about it and tick the appropriate box.

Total Views : 51Word Count Appx. : 399See All articles From Author

Education Articles

1. Microsoft Technologies - Developing Sql Databases (70-762) Exam
Author: Alexa

2. Tips To Meet Your Desire Of Going Through The Choicest Academic Programs
Author: Rocky Sheldon

3. Reveal The Opportunities To Earn A Professional Degree In An Authentic Way
Author: Rocky Sheldon

4. Learn Quran From Anywhere And In Any Language Such As English
Author: Paul Wright

5. Significant Role Of Learning Abacus For Children
Author: poonam sharma

6. Benefits Of Taking Pte Academic India
Author: Arpita Shah

7. Why Design Is An Excellent Career Opportunity For You
Author: Gaurav Peshkar

8. Live Pega 7 Online Training And Self Learning Videos By Real Time It Experts,los Angeles-california
Author: PegaGang

9. Vital Driving Tips For Teens
Author: Richard Jensons

10. Select Worthwhile Institute For Perfect English Speaking Course In Mumbai
Author: Ganesh Sawant

11. Data Science Is Excellent Job Of The 21st Century
Author: joeconnors

12. Top Java Course Training In Begumpet
Author: kooguru

13. 5 Stereotypes When It Comes To Engineering Colleges In Odisha
Author: Amit Singh

14. Everything You Need To Know About The Top Engineering Colleges In Odisha
Author: Amit Singh

15. 7 Things To Learn About The Top Most Engineering Colleges In Odisha
Author: Amit Singh

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: