Growth or Dividend Mutual Funds– Which one are you going to choose?

wealthfundMutual funds do offer with n-number of investment options to choose from. This is what makes choosing a right mutual fund more confusing, especially when you have to choose between Growth or Dividend investment option. Both of them pose different but rewarding advantages. Don’t know how to make the right pick… help is here.

Growth Mutual Funds

This form of Mutual Fund is good for those, who wish to invest in long term funds with prospect for capital gain. This equity based fund follows high reward-high risk mantra. Investing in Growth fund means investor has to hold the units for a period of 5-10, where fund companies are allowed to reinvest investor’s money. No payout is offer in between the entire period of investment, this way NAV or net asset value of the fund increases. On the same amount of originally purchased units, investor thus holds a huge opportunity to make higher capital gain. Growth funds are more volatile in nature than blend funds and value funds. The money is invested amidst large-cap, mid-cap and small-cap groupings. No tax is applied on long term growth equity funds, however for short term gains there is a tax deduction of 15%.

Dividend Mutual Funds

Choosing Dividend Mutual Funds means, investor will receive a payout as dividend. Ideal for short term investments, this form of mutual fund is good for those, who wish to get steady income flow along with capital appreciation (capital gain). Payouts affect the power of compounding, which is not as effective as that of the Growth Fund. Investors have the liberty to use the dividend amount according to their will, they can also choose to re-invest or buy more units in the same fund. Period of dividend payout depends on the plan chosen at the time of the investment. Though dividend is tax free, investor has to pay an entry load when reinvesting. If the investor wishes to buy units from dividend, those units would be locked in for a period of 3 years.

In Short:

 

Growth 

  • Growth fund do not offer interim dividends, and gives capital gains
  • Best for long term equity investments

 

Dividend

  • Offers irregular payouts
  • Tax free dividend to investor
  • Best for short term debt funds

 

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