There are two options for investors in mutual funds – growth and dividend. According to experts, an individual’s investment objective determines the option selected.
If you want to know the difference between growth and dividend options in mutual funds, keep reading this article!
Given below are the primary differences between growth and dividend options –
Elements | Dividend Option | Growth Option |
Profit distribution | The gains generated by the mutual funds are given back to investors at specific intervals. The period can be quarterly, monthly, daily and annual. | Profits generated by the mutual fund are reinvested in the scheme. |
Net Asset Value (NAV) | Lower than growth option | Higher than dividend option |
Total returns | Returns are lower than the growth option | Returns are higher than the dividend option |
Investors who do not require regular cash flows might opt for the growth option. NAV is higher in this option because of the reinvestment of profit. The funds create “profits on profits”, and therefore benefit from the compounding effect. The returns, in this case, are comparatively higher than dividend options in the long run.
Growth options are suitable for an investor who has a risk-taking capacity and a long-term investment horizon. This option can also suit individuals under the 10% tax slab since the Dividend Distribution Tax (DDT) is not there. The NAV of the growth option in mutual fundsDo is always higher than that of the dividend option. This is because the reinvested amount in case of the growth option may rise in value with time.
Investors who need regular cash flows can opt for dividend options. That said, the post-dividend NAV is usually lower in the case of the dividend option. This makes the post-dividend Net Asset Value lower. Due to interval payouts, overall returns are also lower relative to growth options over time.
Dividend options are suitable for individuals looking for regular income, for example, investors who have retired or not earning any longer. In other words, the dividend option is worth considering for individuals who lack income stability.
Furthermore, an individual who falls under the tax slab of 20% to 30% or above can choose to avail of this option because of the relatively lower Dividend Distribution Tax.
As the dividends are taxable in the hands of tax-paying individuals, this option can be suitable for investors whose total taxable income is less than or equal to ₹ 5 lakh. This is because one is eligible for a tax rebate under Section 87A of the Income Tax Act, 1961, making the dividends tax-free.
Also Read – https://navi.com/blog/ter-in-mutual-funds/
Taxes on dividend options depend on an investor’s income tax bracket. However, for growth options, taxes are applicable after fund redemption. Read on to know the details concerning taxation!
Before redemption of funds – There are no tax implications in the case of the growth option.
Also Read – https://navi.com/blog/all-about-direct-plans/
An individual can choose an option based on his/her investment objectives and needs. The total returns from your investment depend on whether you have selected debt or equity funds.
If you are eager to invest in mutual funds online, you can choose Navi. You can choose to invest in Navi Nifty 50 and other Navi Mutual Funds through apps Zerodha, Paytm Money and Groww, to name a few.
Ans: Keep in mind the following two modes when investing in mutual funds –
Lump-sum – When an individual invests a substantial amount in a mutual fund scheme all at once, it is known as a lump-sum investment.
SIP – In the case of a systematic investment plan (SIP), individuals invest a fixed amount in a fund at regular intervals (half-yearly, quarterly, monthly, etc.).
Ans: Net Asset Value or NAV signifies the market value per share of a specific mutual fund scheme. One can compute it by deducting the total liabilities and expenses from the fund’s total assets, and then dividing the result by the total number of units.
Ans: In the case of a direct plan, an individual invests with the Asset Management Company (AMC) directly, without involving any distributor or broker to assist the transaction. It comes with a low expense ratio since the commission fee is not applicable.
Ans: Indexation refers to the re-calculation of the purchase price after making adjustments for the inflation index, as guided by tax authorities. The capital gains are diminished as the purchase price gets adjusted for inflation. An investor can get the indexation benefit for LTCG in non-equity funds.
Ans: Yes, Equity Linked Savings Scheme (ELSS) helps to save taxes and facilitates capital appreciation. Under Section 80C of the Income Tax Act, 1961, an investor gets a tax deduction of up to ₹ 150,000. That said, these funds have a lock-in period of 3 years.
Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
20 Best Large Cap Mutual Funds to Invest in India (February 2023)
Large cap mutual funds are those equity schemes that invest a major portion of their assets under m... Read More »10 Best Nifty 50 Index Funds in India to Invest in February 2023
What is the Nifty 50 Index Fund? Nifty 50 index funds are a type of passively-managed equi... Read More »15 Best Mid Cap Mutual Funds in India to Invest in February 2023
A mid cap mutual fund is a type of mutual fund that invests in the stocks of mid-cap companies. As ... Read More »5 Best Technology Mutual Funds in India (February 2023)
Technology mutual funds are sectoral mutual fund schemes that primarily invest in the stocks and de... Read More »What are Mutual Fund Returns and How to Calculate it?
Mutual funds are gradually becoming a popular investment option in India because of their many bene... Read More »What is Midcap Index – Features, Types and Why Should You Invest in 2023?
What is Midcap Index? A midcap index is a stock market index that has companies ranked between 1... Read More »Best Short Term Debt Funds to Invest in 2023
Short-term debt mutual funds are a type of mutual fund that invest in debt securities with maturiti... Read More »15 Best Pharma Funds to Invest in India 2023
Pharma funds are a type of sectoral funds that invest in pharmaceutical companies. Sectoral funds a... Read More »20 Best Liquid Funds to Invest in India (February 2023)
Liquid funds are debt funds that invest in short-term assets with a maturity period of just 91 days... Read More »15 Best Multi Cap Funds to Invest in India (February 2023)
Multi-cap mutual funds are the kind of funds which invest their corpus in stocks of large-cap, mid-... Read More »Index Fund – Types, Benefits, How does It Work and How to Invest in 2023
What is Index Fund? An index fund is a passively-managed mutual fund with a portfolio built to t... Read More »15 Best Small Cap Mutual Funds to Invest in India (February 2023)
Small cap mutual funds are open-ended equity funds that invest primarily in stocks of small cap com... Read More »Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Best Arbitrage Mutual Funds to Invest in India: Returns and Taxation
Arbitrage funds are hybrid mutual fund schemes that aim to make low-risk profits by buying and sell... Read More »Best SIP Mutual Funds To Invest In India (2023) – Its Types And Taxation
A Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »10 Best Corporate Bond Funds in India 2023 – With Returns
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies ... Read More »10 Best Banks for Savings Account in India (2023)
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10