Dividend Growth Mutual Funds – Double Your Money With The Right Strategy


dividend growth mutual funds

Mutual funds are divided into two categories: growth and dividend. There are several misunderstandings concerning these alternatives among non-professional investors. Some people believe that the growth choice is superior, while others believe that the dividend option is preferable. One option is not always superior to another. You should choose the one that best fits your investment goals, such as your financial goal and tax condition.

What Exactly Is The Dividend Option?

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In the dividend option, the mutual fund scheme’s profits are paid out to investors at regular intervals. Annual dividend payments are the most prevalent. Some programs, however, offer different pay-out times, such as daily, monthly, quarterly, and so on. Depending on the scheme, numerous pay-out alternatives may be available. Dividend reinvestment is a sort of dividend option in which the plan’s payouts are reinvested in the plan. Here are some key considerations to remember about the dividend option: – 

Dividends must be paid out from the scheme’s accrued profits, according to SEBI regulations.

There is no guarantee that dividends will be paid or when they will be paid.

The NAV of the scheme is used to calculate the dividend paid to investors.

What Exactly Is A Growth Option?

Instead of paying out gains to investors, the scheme’s profits are reinvested in the plan in the growth option. Because gains are reinvested in the scheme, you may be able to make profits on profits, allowing you to benefit from compounding. If you are deciding between growth and dividends, you should choose growth if you do not require regular cash flows. Here are some key facts to remember about the growth option: –

Both the dividend and growth options have the same underlying portfolio. When a fund manager makes a profit, it has the same effect on both the dividend and growth options. The main difference is that profits are reinvested in the growth option rather than being dispersed as a dividend.

Because earnings reinvested in the growth option may increase in value over time, the NAV of the growth option will always be higher than the NAV of the dividend option.

Due to compounding, the total returns of the growth option are usually larger than the dividend option over a suitably long investment horizon. 

What Is The Difference Between A Mutual Fund’s Dividend And Growth Options?

One of the most appealing aspects of mutual funds is their high rate of return, which is comparable to what shares provide in the form of dividends. Some of the top Dividend Yield Mutual Funds invest in companies with extremely high dividend-yielding stocks. This enables fund managers to derive the greatest potential value from their assets. 

In dividend mutual funds, profits are distributed to investors, whereas in growth mutual funds, profits are reinvested in the scheme.

The NAV is reduced by dividends paid. As a result, ex-dividend NAV is lower in dividend options, whereas ex-dividend NAV is higher in growth options because profits reinvested may earn profits (compounding).

Conclusion 

We spoke about how mutual funds work in terms of growth vs. dividends. We attempted to define the distinction between dividend and growth. Even if both options have an identical underlying portfolio, the only difference is in how the profit is dispersed or re-invested. In terms of taxation, the growth option has a distinct advantage, particularly over longer investment periods.

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