Any savvy investor understands the value of investing in mutual funds for meeting their financial goals and optimizing their investments. We have spoken about the importance of choosing the right fund, about starting small but starting early and even discussed the SIP option to help you spot the right fund. However, many investors feel confused when it comes to deciding between the growth and dividend options in mutual funds.
Here’s what you need to know to make an informed choice:
Growth Option gives you capital returns but not regular income. It is not an option for short term yield but a good choice for long term investing. The money invested continues to get reinvested leading to capital appreciation but the investors get returns only on redemption. What this means is by choosing the growth option you will not receive any regular dividends but the fund money will be reinvested, increasing the NAV of the fund. This option is not suitable if you are looking for regular income from your investments.
The dividend option is good for investors who seek a regular flow of income from their investments. Especially if you are investing in short term debt funds, choosing the dividend option can provide a steady income flow. However, payment of dividends is at the discretion of the fund manager and is not guaranteed.
The dividend option does not offer high capital appreciation as the money is paid out to the investor instead of being reinvested. Further, compounding cannot work its magic much in this option as regular payouts are made to the investor. However, this option is a wise choice for retired persons who want regular income from their investments. It is also possible to opt for a dividend reinvestment option wherein the dividend is not paid in cash but reinvested to buy more units. However, keeping in mind the entry load and the lock in period (if applicable) each time new units are purchased, growth option turns out to be a better choice.
The choice between growth and dividend options completely depends on your financial goals. However, it is best to be guided right. Get in touch with Dr. Celso at Navemarg to embark on a successful investment journey.