Understanding Dividend And Growth Option In Mutual Funds

By Author: FundzBazar
Total Articles: 3
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Growth Option:

In growth option all profits earned by the fund are invested back into the scheme. So, investor will not receive any intermediate payments in the form of Dividend or Bonus. The return from the scheme gets compounded over time, resulting in higher proceeds at the time of maturity. The only option to realize the profit in the growth option is to sell or redeem your investments. Growth option is best suited to those who are willing to invest for long term.

Dividend Payout option

It implies that part of the profits earned by the fund from time to time is distributed to the unit holders in the form of dividend. Dividend is distributed from the NAV itself, so the NAV of the fund gets reduced by the same amount of dividend declared. The amount and frequency of dividends is never guaranteed. Dividends are declared only when the scheme makes a profit and it is at the discretion of the fund manager.

Dividend Reinvestment option

In this option dividends declared by the fund are not paid to the unit holders but instead reinvested back in unit holder’s account at the prevailing NAV. Dividend ...
... Reinvestment option is as good as growth option. However, one should note that dividend reinvested is treated as new investment and accordingly it may attract exit load & lock in period from the reinvested date.

Few points to note

- Different options doesn’t imply that they are 2 different schemes

- It invests in same set of stocks/bonds; just the nature of distribution of profits is different

- All other things like Investment objective, Fund manager, exit load, etc will remain the same

- NAV of Growth and dividend option are different

- NAV of dividend option will always be lower than growth option (NAV of growth & dividend option will be the same where the fund has never declared dividend under its dividend option)