In today’s world investing in Mutual funds is no rocket science but in india its still a new thing and many investors or even my subscribers who are trading in commodity or forex market since many years asks me what is dividend fund and what is growth funds options in mutual funds and which option should we choose while investing in a mutual funds , lets find out what these options stands for
Growth option
Growth option is pretty simple in this option mutual funds would not pay you any profit and it will remain invested untill you withdraw it , its like you buy a share of 10 rs and you hold it till it goes high or down , in this growth option you buy mutual funds unit , suppose you invest 10000 rs in growth option and 1 unit is 50 rs ( NAV ) and you will get 200 unit . In this option if mutual fund makes profit it will reflect in your NAV and it will rise . This option is for them who want to make wealth in equity and their horizon is minimum 5-7 years .
Dividend option
Dividend option NAV does’nt rise much but mutual funds pays them dividend . This option is mainly suited for those who wants regular income with moderate capital appreciation . Remember this option gives regular payout so it wont rise like growth fund in same scheme . Suppose you invested in ICICI value discovery fund and its growth NAV rises from 80 to 100 in 2 months then dont expect dividend option NAV would rise too . It wont rise as much as growth fund but it will pay dividend
Dividend re-investment option
Ok this is 3rd option nowdays many mutual funds provide , this combination is dividend+growth , in this scheme mutual funds pays dividend but it dont allot to you but it re-invests again in market and new units will have a locking period , Locking period could be 3-4 years . So in my opinion i would go for growth option since there is no locking period
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