Question

From which investment a person will have Capital Growth and Dividend?

Answer 1

Explanation:

Every mutual fund scheme comes in two types of plans – growth and dividend. The growth option gives returns in the form of rising values of mutual fund units. Whereas, under the dividend option returns are paid via periodic dividends.

Types of Mutual Fund Dividend Plans

The dividend plan of a mutual fund scheme is available in different varieties namely dividend payout, dividend reinvestment and dividend sweep. Under the dividend payout plan, the dividend declared is paid into your bank account. Whereas, the dividend reinvestment plan reinvests the dividend in the same fund that has declared the dividend and the dividend sweep plan invests the dividend in units of another mutual fund of the same fund house.

Are Mutual Fund Dividends Same As Stock Dividends?

Mutual Fund and stock dividends are two different things. While stock dividends represent profits earned by a company, mutual fund dividends are not an indicator of the profitability of a mutual fund scheme. High mutual fund dividends do not mean that the fund is doing very well or otherwise. When a mutual fund scheme declares a dividend, the NAV (Net Asset Value) of the concerned scheme falls by a corresponding amount. For example, if a mutual fund with a NAV of Rs 20 declares a dividend of Rs. 2 per unit, the NAV of the scheme will fall to Rs. 18 per unit.

Hence, an investor should not invest in a mutual fund just because it pays high dividends and should think which plan of the scheme suits him/her more – growth or dividend.

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