People who invest money in mutual funds know whether they will get dividend or not.

New Delhi. Investing in mutual funds has become a fashion these days. However, investing in them is also good and profitable. For long-term investors, there is no better option than mutual funds, as equity funds linked to the stock market offer returns of up to 12-15%. But people who invest in it do not know that mutual funds also provide returns. This is because people generally consider it as a way to earn big money in the long run. Today we are only talking about their profits.

There are many types of mutual funds. But from the point of view of making money, it is divided into 2 main categories – 1. Dividend option, and 2. Growth option. When you buy a mutual fund scheme, you have to decide whether you want to take dividends or stay in growth. Both options make money. All funds pay dividends every quarter. In the growth option, the dividend is (automatically) reinvested in the same scheme. But in the dividend option, the dividend received every quarter is credited to the investor’s bank account. You can choose either of these two options in the same scheme.

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What is a dividend option?
Dividend is better for people who want to get regular income. Because in this a part of the fund’s earnings goes directly to the investor in the form of dividends. It can be monthly or quarterly. Dividend paying options have lower NAV because the total value of the fund decreases after continuous dividend payments. Whereas in growth option it is opposite. Any profit received under this option is subject to income tax.

How about a growth option?
As you have learned in this the earnings of the fund are invested back into the same fund. So in such a situation, whatever dividend is reinvested instead of being received directly by the investor. It also has compound growth. Means compound. Not only are you earning on your principal, but you also earn on the principal’s earnings. This gives you a higher NAV as the overall value of the fund increases when earnings are reinvested. NAV price increases. In this, the investor has to pay capital gains tax, that too when he redeems the fund. This tax is generally lower than the tax applicable under the dividend option.

So which option should I choose?
The important question is which option you should choose. If you are investing for a long period of time and want to see your capital grow, then you should choose the growth option, as it allows money to grow exponentially due to the power of compounding.

If you are investing for a short term, or you are investing with the objective of generating regular income, then the dividend option would be better. In this, the investor receives continuous cash. However, capital does not increase.

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