• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2024
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement
​

Growth Mutual Fund vs. Dividend Mutual Funds

  •  3m
  • 0•
  • 01 Feb 2023
Growth or Dividend: Which Is A Better Mutual Fund Investment Option?

When the mutual funds earn profit, they are reinvested into the fund scheme instead of distributed among the investors. So, investors earn profits on the profits that are reinvested.

Important Points

The NAV or Net Asset Value of growth funds are higher than IDCW/dividend mutual funds as the profits are reinvested Investors pay capital gains tax on growth funds when it is redeemed.

Which option to choose? To understand which option to choose, look at the following factors:

Financial goals:

If your financial goal is to grow your wealth, the growth option is for you. As profits are reinvested, the investor benefits from the power of compounding. So, while the fund may be the same, the total returns from the growth option are higher. This makes the growth option ideal for growing a corpus of wealth; for example, you can use growth mutual funds to save for your retirement years. However, if you want regular income from your investments, the IDCW/dividend option is preferable. For example, if you are retired or don’t have a steady income.

Tax situation:

For growth equity funds, STCG or short-term capital gains (i.e., capital gains for funds held for less than 12 months) are taxed at 15%. LTCG or long-term capital gains (i.e., capital gains for funds held over 12 months) are taxed at 10% if the gains are over Rs 1 lakh. Capital gains up to Rs 1 lakh per annum are considered tax-free.

For growth debt funds,

  • STCG or short-term capital gains (i.e., capital gains for funds less than 36 months) are taxed as per the investor’s tax slab, while
  • LTCG or long-term capital gains are taxed at 20%.

For IDCW/dividend funds, equity and debt funds are taxed per the investor’s tax slab. If the investor does not have any other income source, a 10% mandatory TDS is deducted from the dividend income. However, no deduction occurs if the dividend is Rs 5,000 or lower.

Investment horizon:

The growth option works best if you remain invested for at least 3 – 5 years in the fund. This long-term horizon is ideal for wealth creation via compounding. However, for the option of IDCW, there is no requirement as such. Advisors suggest that the option of IDCW is best suited when the market is rising, as there is a greater likelihood of the fund being able to declare a significant amount of profits/dividends.

Conclusion:

The main difference between the growth and dividend options is the profit payout keeping the aspect in mind. So, if you need income in your files and have the specific utility of the money paid out regularly, you can opt for the IDCW option. However, since the dividend payout is not guaranteed, the income as a dividend is also not fixed and can vary from time to time. So, if you do not need the regular income, you can opt for the growth option, and your financial portfolio grows. Thus, analyse your financial condition and requirements and make your choice accordingly.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Free Demat Account Opening
+91 -

personImage
Enjoy Free Demat Account Opening
+91 -