am thinking of investing in MFs and confused between growth and dividend option. Is dividend over and above my invested money?
Am thinking of investing in MFs and confused between growth and dividend option. Is dividend over and above my invested money?
Many first time investors find themselves in the same boat as you as they find it tough to choose between growth and dividend options. All investments made under growth option mean that the number of net Asset value or NAV remain constant as they were at the time of buying the fund. Dividend option on the other hand offers regular income as it repays a part of the investment each year. Dividend is a part of the investment made by you as an investor and something over and above your investment. So if you are seeking to create a financial corpus for the future. Opting for a growth option fund is more suitable. If however you need a regular income you can go in for a dividend plan.
Growth and dividend options differ in two basic ways.
• Return to investors
Mutual Funds with a dividend option, as the name implies, provide dividends at regular intervals to investors. This is over and above the money you invest. Investors in Mutual Funds with a dividend option earn when they receive dividend or redeem their fund units. Growth option, on the other hand, doesn’t provide regular income through dividend. Investors earn profits (or loss, as the case may be) only when they redeem their units.
• The stated NAV (Net Asset Value) or unit price of the Mutual Fund
A dividend option fund provides regular income to investors, and its NAV is lower than that of a growth fund. It doesn’t mean that dividend funds are valued less.
Choose the dividend option only if you are looking at it as a source of income. Note that dividends may not be regular.