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.
Invest NPS Online Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...
