The value of your NAV increases under the growth option. This is the advantage for growth investors. On the other hand, under the dividend option, the investor gets the benefit of dividend from time to time.
Capital gains tax is also levied on the earnings earned in growth funds.
If you are a mutual fund investor then you must have heard about dividend option, growth option and dividend re-investment option. If you do not know about it yet, then it does not matter, in this article we will tell you what all three options are and what are its benefits. With the right information, you will be able to choose the best option for you. This will improve your returns.
Basically all three options are a way of giving returns. First of all let us know what is Growth Option. Suppose A has purchased 1000 units at the NAV price of Rs.10. In this way his total investment became 10 thousand rupees. Suppose after 5 years the value of that NAV increased from Rs.10 to Rs.40. In such a situation, the profit per NAV was Rs 30 and the total profit on 1000 units was Rs 30000. Accordingly, the net profit on A’s investment of 10 thousand rupees in five years was 30 thousand rupees.
no other benefit
However, the investor does not get any other benefit during the investment period. Another example of this is gold investment, property investment, where the growth of your investment is your earnings. Another thing that mutual fund investors should keep in mind is that selling NAV after 1 year attracts LTCG of 10 per cent (Long Term Capital Gains Tax). STCG tax of 15% is levied within 1 year.
Dividend option has regular income
Now the second option is dividend option. In this, you get dividend income at regular intervals. Although how much it is available and at how many intervals, it is not fixed in advance. The growth of NAV is seen less in dividend option. For example, A purchased 1000 units at a NAV of Rs.10. His total investment was 10 thousand rupees. Within a year, this NAV increases to Rs 15, but the fund house decided to pay Rs 2 per NAV as dividend. In such a situation, after a year, this NAV becomes just Rs 13. Had it been a growth option, then the value of NAV would have been Rs 15 after one year.
Debt funds are more beneficial for short term
For investors, equity funds give better returns than debt funds for the long term. The second important thing is also that for how many days you invest and what is your objective as well as considering the tax calculation should choose dividend option or growth option. If one wants to invest for short term, then debt funds are more beneficial for him.
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