Mutual Funds: Dividend options vs. growth options
To a beginner, the endless options available for mutual fund investments might seem like an uncharted sea. It can be difficult to decide which option is best for you, due to their comparable advantages and disadvantages. Dividend and growth options are a great example of this problem. This article aims to clear up this confusion by pitting growth mutual funds vs. dividend mutual funds.
Growth and Dividend Defined
- Open-ended Funds: Where you do not have a limit on how many shares you can buy or sell and have an unspecified period of time to do so.
- Closed-ended Funds: Where the fund is launched through an IPO in order to raise money, and then traded on the open market.
Both growth and dividend funds fall under the open-ended funds category, giving you a little more flexibility with your investment choices. Growth mutual funds, by definition, are a diverse collection of stocks that feature capital appreciation as their main goal, with little to no dividend pay-outs. This means that the money that would normally be used to pay a dividend to an investor will be reinvested instead, increasing the value of the shares themselves.
The meaning of a dividend mutual fund is that it issues a regular pay-out to investors in the form of a dividend. This amount can be quoted in terms of the rupee amount each share receives, or it can be a percentage of the current market price (also known as the dividend yield).
The Pros and Cons
Now that you understand what a growth option is in mutual funds, as well as what a dividend option is in mutual funds, it’s time to evaluate the pros and cons of each. Financial institutions such as such as Bajaj Finserv, offers a number of attractive investment options for their Mutual Funds programme. It is up to you to decide which option best fits your own investment horizons.
- Growth Funds Pros:
- Builds the capital appreciation of your shares
- Helps avoid taxation due to long-term capital gains
- Gives good returns in the long run
- High NAV (net asset value)
- Growth Funds Cons:
- Doesn’t yield a regular income
- Prone to short-term risk
- Takes longer to yield a profit
- Dividend Funds Pros:
- Yields a regular income
- Great for short-term investments
- Builds moderate capital appreciation over time
- Dividend Funds Cons:
- Pay-outs lessen the power of compounding
- Dividends are subject to taxation
- Dividends are never guaranteed
If these options still seem quite confusing, having a mutual funds expert to talk to can help with the decision-making process. Bajaj Finserv has trained professionals prepared to help you manage your mutual funds in a way that best fits your current financial needs.
In addition to seeking the right assistance, monitoring the mutual funds dividend history of a company can also help you make decisions with your investments. This can help you monitor the performance of a company that you have invested in, and can be easily accessed online. Bajaj Finserv also provides investors with tools that can help them manage their investments, such as their SIP Calculator, which allows you to determine your expected rate of return.