Dividend vs Growth Option

Published On: 06-Jul-2017

When investors consider an investment option, they worry simultaneously about several things. Is this investment tax‐efficient? Does it reduce or increase my tax liability? Does this investment grow in value? Does it provide a regular return like dividend or interest?  If they choose an investment that provides regular income, like a bond or a deposit, they get no appreciation in the value invested. If they choose an investment that has the potential to appreciate, there is no regular income in the form of dividends.   Mutual funds enable the best of both worlds.  They give investors the option to choose dividends or growth.  Investors can buy a debt fund and choose a growth option, thus opting for capital appreciation in a debt portfolio.  Investors can buy an equity funds and choose a dividend option, to get regular income.  Virtually all mutual fund products provide dividend and growth options to investors.

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The dividend option aims at paying periodic dividends to the investor provided the fund has earned returns.

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The additional consideration in choosing between dividend and growth options is the tax implication.

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This way investors who need income can also choose the growth option, and investors who need growth can also choose the dividend option.

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