What is different between growth plan and dividend plan?
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Growth Option
A growth option is where the fund manager puts back all profits earned from the stocks or securities back into the fund. This adds to the NAV of the fund.
Dividend Option
In a dividend option, the fund manager starts ear-marking portions of the fund to be paid out to investors as dividend. Investors can choose to get these portions of money (Dividend Payout Option) or choose to reinvest these funds back into the fund (Dividend Reinvestment Option).
Dividend in Equity Funds
Most equity funds typically (though there is no set frequency) declare a dividend once a year.
Dividend in Debt Funds
In debt funds, the nuances of the dividend option can be demarcated by looking at the very short category (Liquid & Ultrashort term funds) and slightly longer (Medium Term Funds,Long term Income Funds, Gilt Funds(long dated)) differently. While both have dividend options. The liquid fund and ultra short term category have the option of daily, weekly, fortnightly, monthly, quarterly etc dividend options. This is given as an option to investors to decide their tax incidence, whether they would like to pay capital gains (in the growth option) or get taxed at source in the dividend option.
Taxation on Dividend (Equity & Debt funds)
As per current tax laws, there is no tax on equity fund dividends. As for debt funds, these are taxed at source at 25% (+ surcharge etc). Given that short term capital gains are taxed at 30% (+ surcharge etc) and the capital gains period is also 3 years, it sometime makes sense for investors to get into the dividend reinvestment option to incur lower tax. Hence in case of liquid funds or ultrashort term funds may investors get into the daily or weekly dividend reinvestment options(most likely) to have a lower tax incidence and hence make more on the investment.
A growth option is where the fund manager puts back all profits earned from the stocks or securities back into the fund. This adds to the NAV of the fund.
Dividend Option
In a dividend option, the fund manager starts ear-marking portions of the fund to be paid out to investors as dividend. Investors can choose to get these portions of money (Dividend Payout Option) or choose to reinvest these funds back into the fund (Dividend Reinvestment Option).
Dividend in Equity Funds
Most equity funds typically (though there is no set frequency) declare a dividend once a year.
Dividend in Debt Funds
In debt funds, the nuances of the dividend option can be demarcated by looking at the very short category (Liquid & Ultrashort term funds) and slightly longer (Medium Term Funds,Long term Income Funds, Gilt Funds(long dated)) differently. While both have dividend options. The liquid fund and ultra short term category have the option of daily, weekly, fortnightly, monthly, quarterly etc dividend options. This is given as an option to investors to decide their tax incidence, whether they would like to pay capital gains (in the growth option) or get taxed at source in the dividend option.
Taxation on Dividend (Equity & Debt funds)
As per current tax laws, there is no tax on equity fund dividends. As for debt funds, these are taxed at source at 25% (+ surcharge etc). Given that short term capital gains are taxed at 30% (+ surcharge etc) and the capital gains period is also 3 years, it sometime makes sense for investors to get into the dividend reinvestment option to incur lower tax. Hence in case of liquid funds or ultrashort term funds may investors get into the daily or weekly dividend reinvestment options(most likely) to have a lower tax incidence and hence make more on the investment.
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