MUTUAL FUNDS

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GROWTH OPTION VS
DIVIDEND OPTION
What should you opt for?

Read on to familiarise yourself with both growth and dividend option of mutual funds and consider some key factors before you make your choice.

What is the growth option?

In the growth option, any profit made by the mutual fund scheme is reinvested which results in good profits on maturity. You also gain compounded returns. The Net Asset Value (NAV) is affected if the scheme makes a profit or loss.

What is the Divident option?

In the dividend option, profits made by the scheme are given to investors. You may receive this dividend on a monthly, quarterly, half-yearly, or a yearly basis. The dividend amount is not fixed, and if the scheme fails to turn a profit, you may not receive any dividend at all.

Which one is better?

Based on the following factors you can decide which one suits you better:

If you are retired or plan to retire soon, you will need a regular source of income. In this case, it is wiser to go for the DIVIDEND OPTION

CONSIDER THE TAX FACTOR

10% above 1 lakh p.a.

GROWTH

DIVIDENT

10%

In accordance with the Finance Bill 2018, a tax of 10% will be levied on long-term capital gains of more than Rs 1 lakh per annum. If your gains are less than this, you are not liable to pay taxes.

Until April 2018, investors didn’t have to pay taxes on dividends. But since then, fund houses have started deducting a dividend distribution tax of 10%.

If long-term wealth creation is your goal, the growth option will suit you better it offers you compounded returns.

An important factor is your need for liquidity. If liquidity is a requirement, go for the dividend option.

Disclaimer: This infographic is intended for general information purposes only and should not be construed as tax or legal advice. You should separately obtain independent advice when making decisions in these areas.