Which one is better, Dividend or Growth option?
Mutual fund investors are spoilt for choices and it's not only the number of schemes that are massive, even the option among these schemes are multi-fold. One of the options available in every scheme is dividend or growth. Selecting right option will help you better manage your personal finance and financial goals. All the basic features of the fund remains the same, for example fund manager, performance, portfolio, investment objective etc, only the way profit is distributed changes.
Difference between Dividend and Growth Option
The dividend options of a scheme will help you generate cash flows at periodic intervals in form of dividends paid by the schemes. Nevertheless, neither the period nor the amount of such cash flow is certain. When you opt for growth option, there are no cash flow for you until and unless you do not sell your mutual fund units. The profits will keep on accumulating with your fund and will be reflected in the net asset value. Normally, funds with dividend options have lower NAV compared to the Growth options.
Which is better for you?
There are few basic questions that you need to answer to know which option suits you. First is your investment objective, if you are saving to buy a house or want to create retirement corpus and do not need any cash flow from your investment in between, growth option is more suited for you.
Nevertheless, if you want your investment to generate regular cash flow, dividend option is for you. Its not like the regular dividend paid by companies. The amount of dividend will get deducted from the NAV. Moreover, if you are a short-term investor and do not want to take risk of a sudden fall in the market, you may go for dividend option. However, it does not guarantee that you're completely shielded from the market vagaries. Dividend option is useful only if a large amount is invested, as it will help you generate some meaningful cash.
Therefore, if you are a long-term investor, Growth option is for you, however, for retirees and short term investor looking for regular cash flow, opt for Dividend options.