Should you go with a growth or dividend option in equity funds?
Equity mutual funds are those funds that invest predominantly in equity and equity related instruments. What equity funds do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the Indian and foreign economy, depending on the nature of the scheme. For example, an international equity fund will invest in stocks of foreign companies as well. On the other hand a blue chip fund invests in stocks of companies operating in India who have a large market capitalization.
Mutual fund investors are allotted mutual fund units in quantum with the investment amount and depending on the fund’s existing NAV. If you are new to investing and do not know how much money you need to invest regularly to achieve your life’s goals then you can use the SIP return calculator available online. A Systematic Investment Plan is an easy and convenient way to invest in mutual funds. There are two methods for making an investment in mutual funds. Investors can either make a lump sum investment or they can start an SIP in mutual funds. Lumpsum investment is generally preferred by those investors who have surplus cash sitting idle which they want to park in an investment scheme. A lump sum investment in mutual funds is generally made at the beginning of the investment cycle. Investors receive units in bulk.
A Systematic Investment Plan on the other hand allows investors to invest small fixed amounts at regular intervals in mutual funds. If you are a KYC compliant individual you can start investing in mutual funds via SIP right away. All you need is a smartphone and a decent internet connection. You can start a mutual fund SIP in a jiffy.
How to make withdrawals from your mutual fund investments?
Just like mutual funds have multiple investment options, they also offer multiple withdrawal options. There are two ways in which you can decide on how you want to redeem capital gains from your mutual fund investments.
The first option is the growth option. A growth option in mutual funds is usually favoured by those who do not have immediate cash. If you are someone who is seeking wealth creation through their mutual fund investments then they should go with the growth option. When a mutual fund performs and makes profit, this profit earned by the fund is invested back in the fund. Over a period of time, this may result in the increase in the net asset value of the fund. Because the capital gains made by the fund are invested back in the fund, there is a good chance of your investment multiplying in the long run. A growth option is ideal for investors with a long term investment horizon. If you have long term financial goals like building a retirement corpus, or planning a destination wedding for your daughter or want to send your children overseas for foreign education, then you should stick with the growth mutual fund plan.
The next payout option for mutual fund investors is the dividend option. In the dividend option, whenever a mutual fund makes profit, these capital gains aren’t invested back in the fund. But instead, they are rolled out as bonuses in the form of dividend payouts to investors. The dividend that mutual fund investors receive is from the fund’s NAV. Dividend option in mutual funds is generally feasible for those who are seeking regular income from their mutual fund investments.
Now that you know the difference between growth and dividend and also know which payout out is preferred by what type of investor, what have you decided? Do you want to go with the regular plan or instead opt for dividend payouts?