Choosing between Dividend and Growth options in MFs

When you are investing in a mutual fund scheme, you are given the option of choosing between Dividend and Growth. If you are not aware about the difference between the two and what it entails for you as an investor, you would be at a loss to make the choice that is suitable for you. So, let us first understand the difference between the two options and how you can choose the option that is most suitable for you.

A mutual fund scheme with a Dividend option simply means that if the scheme makes profit and declares dividend, you would be entitled to receive it as and when declared. On the other hand, a mutual fund scheme with Growth option may not declare dividend at all, so that the profits made by the AMC remains with the AMC and thereby the investor benefits from the compounded growth of investments. Or even if the Growth scheme declares dividend, it will not be distributed among the investors, but it will be reinvested by the mutual fund house to achieve compounded growth of the fund corpus.

Now, the choice between Dividend and Growth options should be made on the basis of one’s financial plan. An individual’s financial plan should take into consideration the age, income, expenses, risk appetite, return expectations, financial goals and financial liabilities of the individual. For example, a married person of 30 years of age with a decent salary would have high expectations of returns and would be willing to take high risks. He will also have many long term financial goals such as buying own house and car, children’s education and marriage, creating retirement fund, etc. A mutual fund scheme with Growth option would be most suitable to fulfil his long term financial goals. On the other hand, a person in his 50s would have fulfilled many of his long-term financial goals and would be looking forward to regular income after retirement. For such an individual, mutual fund schemes with Dividend option would be most suitable as these would provide annual income in the form of dividend.

So, you must choose between the Dividend or Growth options depending on your age, income level, financial needs and financial goals.