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Difference between revisions of "GROWTH option vs DIVIDEND option"
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| + | In Mutual Funds, there are two types of options - GROWTH and DIVIDED | ||
| + | |||
| + | In GROWTH option, the fund manager, when booking profit in the underlying assets will retain the returns and add them to the corpus of the fund. | ||
| + | |||
| + | So, the dividends, profits etc will inturn be invested and the cycle keeps on going. | ||
| + | |||
| + | However, in DIVIDEND option, when the fund manager sees little investment opportunities going forward, | ||
| + | |||
| + | Or when the scheme mandates that it needs to share profits periodically, the fund manager announces a DIVIDEND. | ||
| + | |||
| + | Under DIVIDEND option, there will be two sub-options | ||
| + | |||
| + | DIVIDEND - PAYOUT | ||
| + | |||
| + | DIVIDEND - REINVESTMENT | ||
| + | |||
| + | In DIVIDEND - PAYOUT, the dividend announced will be given to you by way a fund transfer to your bank account. | ||
| + | |||
| + | In DIVIDEND - REINVESTMENT, the dividend amount is used to purchase units of the scheme | ||
| + | |||
| + | In some schemes, such as MIP Schemes, there will be sub-sub-options like: FORTNIGHTLY, MONTHLY, QUARTERLY etc. | ||
| + | |||
| + | Basically, they denote how frequently the dividend is to be shared with investors. | ||
| + | |||
| + | Dividends are tax free in the hands of investors. However, there will be a Dividend Distribution Tax (DDT) incurred on the scheme. The scheme is indirectly our money. So, we are basically paying a tax on dividend indirectly. | ||
| + | |||
We should prefer Dividend option when we need periodic returns or if we wish need some sort of regular income from the mf scheme. | We should prefer Dividend option when we need periodic returns or if we wish need some sort of regular income from the mf scheme. | ||
If you are a young investor who wish to invest for really longer time frames such as 10+ years, then the GROWTH option is a better one. | If you are a young investor who wish to invest for really longer time frames such as 10+ years, then the GROWTH option is a better one. | ||
| + | ==Related Topics== | ||
| + | *[[Net Asset Value]] or NAV | ||
| + | *[[Know Your Customer]] / KYC | ||
| + | *[[Expense Ratio]] | ||
| + | *[[Systematic Investment Plan]] and Compounding effect | ||
| + | *[[SIP vs Lumpsum Investments]] | ||
| + | *[[GROWTH option vs DIVIDEND option]] | ||
| + | [[CAtegory:Mutual Funds]] | ||
Revision as of 09:40, 4 March 2017
| Home | Personal Finance | Mutual Funds | Equity |
In Mutual Funds, there are two types of options - GROWTH and DIVIDED
In GROWTH option, the fund manager, when booking profit in the underlying assets will retain the returns and add them to the corpus of the fund.
So, the dividends, profits etc will inturn be invested and the cycle keeps on going.
However, in DIVIDEND option, when the fund manager sees little investment opportunities going forward,
Or when the scheme mandates that it needs to share profits periodically, the fund manager announces a DIVIDEND.
Under DIVIDEND option, there will be two sub-options
DIVIDEND - PAYOUT
DIVIDEND - REINVESTMENT
In DIVIDEND - PAYOUT, the dividend announced will be given to you by way a fund transfer to your bank account.
In DIVIDEND - REINVESTMENT, the dividend amount is used to purchase units of the scheme
In some schemes, such as MIP Schemes, there will be sub-sub-options like: FORTNIGHTLY, MONTHLY, QUARTERLY etc.
Basically, they denote how frequently the dividend is to be shared with investors.
Dividends are tax free in the hands of investors. However, there will be a Dividend Distribution Tax (DDT) incurred on the scheme. The scheme is indirectly our money. So, we are basically paying a tax on dividend indirectly.
We should prefer Dividend option when we need periodic returns or if we wish need some sort of regular income from the mf scheme.
If you are a young investor who wish to invest for really longer time frames such as 10+ years, then the GROWTH option is a better one.
Related Topics
- Net Asset Value or NAV
- Know Your Customer / KYC
- Expense Ratio
- Systematic Investment Plan and Compounding effect
- SIP vs Lumpsum Investments
- GROWTH option vs DIVIDEND option