How does a dividend mutual fund play out? Is it better than growth option?
Dividend option as the name suggests offers regular income for the investors as it repays a part of the investment each year. The repaid amount is known as dividend which is declared per unit basis for the fund. A common misunderstanding a lot of people have is that they feel a dividend is over and above their invested money. The fact is that dividend is a part of the investment made by the investor. As far as growth funds go, all investment 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. The value of NAV however changes according to the performance of the fund over the years. It is hard to pick one over the other and both growth and dividend funds have their place. You should therefore choose the right fund as per your financial goals.
How important is portfolio concentration when choosing a mutual fund?
Portfolio concentration is extremely important as it tells you where the mutual fund manager is investing the funds. It is recommend that you should take a look at portfolio concentration ratio which can tell you as an investor the percentage of the fund’s investment in top five sector or areas. Normally mutual funds have a portfolio concentration ratio between 30-40% for top five sectors. As an investor it is essential to choose a fund which balances the thin line between adequate portfolio representations without going in for excessive diversification.
When you choose the dividend option for your Mutual Fund, you will receive dividends that are declared from time to time by the Mutual Fund. You will also have capital appreciation, if any, if you decide to sell the Mutual Fund. In case you choose the growth option, you will not receive any dividends but will get capital appreciation. You have to understand that for the growth option, the profits that the fund receives will be distributed as dividends under the dividend option and will be retained within the fund.