Growth or Dividend: Which is a Better Mutual Fund Investment Option?

Mutual Funds spoil you for choice with their numerous categories or options. You can choose to invest in large, mid or small-cap funds or choose from options like growth and dividends. Each of these investment options gives you a unique set of benefits and caters to different financial goals.

Mutual funds are investment tools where money from multiple investors is pooled together and used to invest across a diversified portfolio. It offers different plans and options.

In this article, we compare growth vs dividend investment options so that you can make a choice that aligns with your overall financial objectives.

What Is the Growth Option?

Under the growth option of a mutual fund, any profits made by the mutual fund are not paid out to you, the investor. Instead, the gains are reinvested back into the fund. These reinvested earnings lead to a compounding effect over time, and the Net Asset Value (NAV) of the fund increases over time if it performs well.

What Is the Dividend Option?

With the dividend option, the mutual fund distributes profits to all investors as dividends. These dividends can be used as dividend payouts, where you would receive cash payouts, or as dividend reinvestment, where your dividend would be used to purchase additional units of the fund.

Growth vs Dividend: Which Option to Choose?

When selecting between a growth or a dividend option, consider the following:

1. The growth option is best for wealth accumulation and long-term financial goals. Dividend options generate regular income that helps you meet short-term financial needs.

2. Under the growth option taxes are applicable only when you redeem units. Dividend payouts are however taxable based on your income slab.

3. With the growth option you do not have periodic cash flows whereas the dividend option gives you regular payouts.

4. If you are comfortable with market fluctuations and aim for higher long-term returns, go for the growth option. If you consider yourself a conservative investor and prefer periodic returns to mitigate market risks, then the dividend option may be more suitable for you.

5. Consider your market conditions. In bullish markets, growth options can result in higher gains. In volatile markets, dividend payouts may decrease as profits decrease.

Final Thoughts

Every investment decision must be made after carefully considering all your options. Take into account your financial plan and objectives. This will help you decide if you should take the growth or the investment route.

After devising a financial plan and deciding how you want to invest, the next step is to find a reliable financial platform through which you can start investing. Tata Capital Moneyfy is an easy-to-use financial platform that offers you comprehensive financial solutions and assistance at all times. Our dedicated financial experts and intuitive app make executing your fund investment plans easier.