Lux Investing

Mutual Funds, is it better to invest in Growth, Dividend or Dividend Re-Invest schemes ?

It seems that the Growth funds always quote much higher NAV than Dividend funds, while in dividend funds, the NAV drops further when dividend is declared by the fund house.. I am a bit confused as to which is a better option between G, D and D-Reinv.

Public Comments

1. Growth, dividend reinvestment and dividend payout are three options. these give same benefits. the difference lies in mode of distribution of profits/gains. growth option gives benefit by increase in nav but the number of units does not increase. dividend reinvestment option results in increase of number of units and dividend payout option gives benefit in cash. one can choose option according to his needs.
2. actuly u should opt for growth to get high return on u r investments dividend option is not good one
3. If you don't need the money then growth is best because the money is compounded,lets say your Fund growth rate is 30% PA after 10 years the compound growth will be very high and after 20 years it will be Tremendous.
4. Growth scheme is indeed best. If u don't need money in a regular interval than there is no option better than growth. Generally you will loose your money in your household expenses what you get from dividend. D-reinvestment may be said suppliementary of growth option. But still growth is best
5. Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time. Income Funds The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund. Balanced Funds The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods. Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961. Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50. Sectoral Schemes Sectoral Funds are those which invest exclusively in specified sector(s) such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to specific sector(s) / industry (ies). Growth Option Dividend is not paid-out under a Growth Option and the investor realises only the capital appreciation on the investment (by an increase in NAV). Dividend Payout Option Dividends are paid-out to investors under the Dividend Payout Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend payout. Dividend Re-investment Option Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same. Retirement Pension Option Some schemes are linked with retirement pension. Individuals participate in these options for themselves, and corporates participate for their employees. Insurance Option Certain Mutual Funds offer schemes that provide insurance cover to investors as an added benefit. Systematic Investment Plan (SIP) Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. The investor is allotted units on a predetermined date specified in the offer document at the applicable NAV. Systematic Withdrawal Plan (SWP) As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day. Hope i cleared your doubt....feel free to contact if i didnt provide u with necessary details. Happy investing..!!!!
6. You can't judge a mutual fund by NAV price; you need to look at total return (relative to its peer funds), risk, management and expenses. ALL fund NAVs drop when dividend/capital gains distributions are made, but those distributions are normally reinvested in additional shares.