Growth or Dividend?

This is a question any mutual fund investor should ask himself. Should I opt for the growth or the dividend option? Also, does dividend re-investment make any sense whatsoever?

If you leave this to your advisor (in most cases the salesman), he will chose one almost randomly. In fact he does not really care as his commission/fee is not dependent on this. You have to make the choice based on your requirements.

• In the Growth Option all returns from the assets held are simply ploughed back in. You get no dividends, and appreciation is basically seen in the NAV going up. If you are looking at long term asset appreciation and are not dependent on the income being generated by your investments for your expenses, go for the growth option.
• The Dividend Payout Option basically gives you any asset appreciation in the form of dividend. If your investments are your source of income, then dividends will come in handy.
• The Dividend Re-investment Option gives you the dividend, but basically invests it back into the fund. This option makes absolutely no sense to me. In fact when you are redeeming, you may end up having to pay for short term capital gains on the units that you bought from the dividend. Unless our tax laws change (and I cannot imagine how) this option is totally useless. If you are even considering this, simply go for the growth option.

Another factor to consider is your investing approach. Conservative investors who would like some investments in relatively higher risk assets, may want to get dividends from the higher risk assets and invest the proceeds in a debt/income fund or their bank deposit.

In theory, any option you choose should give you identical results. In case you choose the dividend payout option, returns would obviously depend on what you do with the dividend income.