Most mutual fund schemes come in three options - dividend, dividend reinvestment and growth. The fact that under the dividend option the fund keeps on declaring regular dividends and no such payments accrue under the growth option might suggest to some investors that the former are more yielding. However, the truth is that it does not make a dime of difference which option you choose, from the pure investment-yield point of view. The form in which you choose to receive the gains might have tax implications though.
When your fund pays out a dividend all it has done is - paid out the gains it has generated instead of accumulating it. So now the onus of investing this money falls back on you. Moreover, any dividend paid means that the fund pool is smaller by the amount of the payout and this is reflected in the lower NAV. Had the fund not paid the dividend, it would have been reflected in the higher NAV of the fund and as a result the value of the units held by you would have appreciated which you would have realised on redemption. Under the dividend reinvestment option, the same dividend amount as paid under the dividend option is paid. However, instead of an absolute amount, the dividend is paid in the form of higher units issued to the investor.
There is a caveat, though. Investors should opt for that option that minimises their tax liability. If dividend income is tax-free (as is the case with dividends from equity funds), then the dividend option or the dividend reinvestment option is a good bet. If capital gains are tax-free (as is the case currently with equity-oriented funds) then choosing the growth option would probably be more viable. If both are tax-exempt, the net returns will be identical from any option.
DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance. The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years. The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...
