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.
National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
