There are various reasons one invests in Mutual Funds. The decision to invest in dividend or growth option Mutual Funds is based on what you want to achieve from your investments. Make sure that your investment philosophy is in line with your financial goals.
Here, the major difference between the growth and dividend options of Mutual Funds are:
In the dividend option, Mutual Funds shares its profits with investors through regular payouts, which are called dividends. They are based on the performance of the Mutual Funds. When the dividend is issued on Mutual Funds its net asset value is reduced to the extent of the payout.
In the growth option, Mutual Funds re-invests the profits on behalf of its investors, instead of paying out dividends to achieve long-term growth.
There are few Mutual Funds that also offer an option called dividend reinvestment. In this, the Mutual Funds declares a dividend and instead of paying out in cash allows additional units in the scheme to investors.
- In a dividend option, you get regular income based on the fund‚Äôs performance but your NAV does not grow.
*In the dividend reinvestment option, you get additional units of your Mutual Funds scheme instead of cash. Your NAV does not grow
*In the growth option, you get neither regular income nor additional units but your NAV grows according to the performance of the Mutual Funds.
So, how do you choose the right one?
If you are looking for regular return and have a low appetite for risk (for example, a retiree), choose the dividend option. If you are looking for long-term capital appreciations opt for the growth option and allow the magic of compounding to work for you.
Irrespective of what you choose if you have made up your mind to invest, you can start investing with HDFC securities. Being an experienced investor I would certainly recommend them to anyone.
Click on this link if you wish to start investing: https://www.hdfcsec.com/mutual-fund-investment-online