Skip to main content

Mutual Fund Options - Growth or Dividend or Dividend Re-investment

Mutual Fund Investment Options - Growth or Dividend or Dividend Re-investment
 

Growth, Dividend or Dividend Re-investment
When investing in mutual funds, there are three options that are available in which you could invest: growth, dividend and dividend reinvestment. One is normally expected to select one of the three options when filling an investment form, however, in case if you do not fill any of the option, the fund house selects the default option for the scheme as mentioned in its Scheme Information Document (SID), which is most often the growth option. Investors have the flexibility to change the investment option at a later date to suit their convenience.

Growth option: In this option, the scheme does not pay any dividend, but continues to grow. Therefore, nothing is received by you as a unit holder and hence, there is nothing to reinvest in the scheme. Any gains made by selling the fund holdings are invested back into the scheme, which can be seen in the NAV (net asset value) of the scheme, which rises over time. But, the number of units with the investor remains the same.

Dividend payout: In this option, the mutual fund scheme pays you from the profits made by the scheme at regular periods which could be monthly, quarterly, half-yearly or yearly in case of debt funds and at irregular intervals in case of equity funds. A liquid fund also provides for a daily or weekly dividend option. However, you should be aware that dividends are not guaranteed, which means a fund is not bound to pay out a dividend; it may or may not pay a dividend.

Dividend reinvestment: In this option, the dividend is not paid to you, instead it is reinvested in the fund scheme itself by buying more units on your behalf.

Each of the three options has its share of pros and cons, which will vary depending on your needs. As investors, the treatment of gains and taxes are the two essential features that differentiate these options. If evaluating the returns from an investment at a point of time, there is no difference among the three options. The difference emerges in an implicit form with respect to the applicable taxes.

Further, it is important to consider the tax impact when selecting between the growth, dividend payout or dividend reinvestment options as the post-tax returns' differs between the options. This difference occurs because, the tax treatment is different for long-term and short-term holding period. The tax treatment also differs for equity and debt funds.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. IDFC Tax Advantage (ELSS) Fund

4. ICICI Prudential Long Term Equity Fund

5. Religare Tax Plan

6. Franklin India TaxShield

7. DSP BlackRock Tax Saver Fund

8. Birla Sun Life Tax Relief 96

9. Reliance Tax Saver (ELSS) Fund

10. HDFC TaxSaver

Invest Rs 1,50,000 and Save Tax under Section 80C. Get Good Returns by Investing in ELSS Mutual Funds Online

Invest in Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more

Benefits Of Repo Rate & CRR Rate Cut On Consumers

  How Reduction In Repo Rate & CRR Affects Customers Finally  RBI announced slashing of repo rate by 25 basis points (bps ) and cash reserve ratio (CRR) by 25 bps which industry experts believe will fuel the economic growth to some extent. Although experts were expecting higher rate cut this year. This lowering of the rate cuts has taken place for the first time in nine months. Now let's see how reducing the repo rate (defined in economic term as the rate at which RBI lends money to the banks) relates to the following individuals and sectors: Banking:   Lowering of repo rate directly reduces borrowing costs of a bank. Banks in turn reduces interest rates on different types of loans such as home, auto, business etc. Similarly trimming down of CRR allows banks to unlock money for lending to the customers i.e. with 0.25 rate cut banks are estimated to lend more than INR. 17 Crores. Consumers:   Lower repo rate does not necessarily benefit existing loan borrowers but new loan se...
Read more

NRI Corner: The process of remittances abroad

The process of remittances abroad, and back, is cumbersome. Here’s how you can wade through without hassles Approach The Right Place Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier. Choose Mode Of Transfer The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft ( FCDD ). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now