Growth or Dividend: Which is the better Mutual Fund Scheme Option?

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At the time of mutual fund scheme investment, people get confused between mutual fund growth or mutual fund dividend. Based on your investment objective, you should decide between the above mentioned mutual fund investment plans. Your financial goal must be the deciding factor for mutual fund dividend vs growth plan. If you want regular income from mutual fund scheme investment, then mutual fund dividend plan is the option. Whereas to build wealth for the long-term, mutual fund growth is the best choice. The NAV of the mutual fund growth plan differs from mutual fund dividend plan.

When to choose Mutual Fund Growth Plan?

Among the two mutual fund investment plans, you can choose the mutual fund growth plan if you have long term investment objective. If you intend for long term wealth creation, then growth plan of a mutual fund scheme is the best choice. The profits generated from a growth scheme will be reinvested back. Mutual Fund growth plan is ideal for retirement corpus or any long-term goal. But do remember the NAV of growth mutual fund scheme will rise during profit and fall during loss. In mutual fund growth plan, no additional units or regular income is possible.

When Mutual Fund Dividend Plan is Better?

When you need a regular payout from mutual fund scheme investment, then mutual fund dividend plan is a better option. In the dividend option, when the mutual fund scheme experience profit, then it is distributed. After the fund manager issues dividend, the NAV gets reduced to the amount of payout. The mutual fund dividend plan is best when the market is high.

In case of dividend re-investment, the declared amount instead of paying out will be reinvested for buying additional units. So, the extra units will be added to the existing holdings of the mutual fund scheme.

Let’s explain the dividend reinvestment with an example-

Dividend Amount Rs. 5000
Existing Units 1500 units
NAV after deducting the dividend Rs. 15
Additional Units Purchased 333.33 units (5000/15)
Total no.of units after dividend reinvestment 1833.33 units

Mutual Fund Dividend Vs Growth

To compare mutual fund dividend vs growth plan, following are the point of differences in a tabular format.

Parameters Growth Dividend
Ideal for investment Long term wealth Markets are high
NAV It does vary with the market condition NAV varies with the market condition and dividend payout
Dividend Payout Not given to the investors Given to the investors.
Regular Income No Generated when the fund is in profit
Units Holding Remains the same Units can increase due to dividend reinvestment
Taxation If you stay invested more than a year, no tax will be charged. 10% tax will be charged for LTCG over Rs. 1 lakh for equity funds. Or else tax is charged on short term capital gain 10% DDT on an equity-oriented mutual fund is paid by the fund house. Investors will be tax-free from mutual fund scheme dividend plan investment

In short, depending on your investment goal, you should select the appropriate mutual fund scheme plan. Both mutual fund investment plans invest in same stocks, bonds have the same portfolio & sectoral holdings but differ in NAV values.

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