We Love Financial Planning
  • Home
    • Rohit Shah's Corner
    • CSR >
      • Wealth Shiksha
  • Services
    • Financial Planning >
      • What we do
      • How we do
      • Why Us
    • Rate Card
    • Kids & Money
    • Employee Financial Wellness
    • Mutual Fund Advice
    • Disclaimer & Disclosure
  • Get Started
  • Blog
    • Resource Guide
    • Beyond Money
  • FREE
    • FREE Sample Plan
    • FREE eBooks
    • Videos
    • Calculators >
      • Retirement Planning Calculator
      • Life Insurance Planning Calculator
      • Goal Planning Calculator
      • Future Value Calculator
    • Templates
    • Infographics
  • Media
    • Quotes
    • Coverage & Interviews
    • Articles
    • Q&A
  • Gallery
    • Events
    • Testimonials >
      • Testimonials - Financial Planning
      • Testimonials - Blog & Media Articles
      • Testimonials - Seminars
    • Photos
    • Our Ads
  • Contact

Yours truly

This is our Blog on Personal Finance. We will attempt to be analytical as well as educative. We will tell you what we like and what we don't. We will tell you what we do with our money and what we tell you is what we will follow for us. Tell us what you like to see.

Free Resources

Growth Vs. Dividend Schemes in Mutual Funds

7/11/2012

0 Comments

 
Personal Finance, Financial Planning, Mutual Funds, Investments, Personal Taxation, Capital Gain
Last weekend I met two of my friends for dinner, and we were talking about mutual funds. They both had invested in ABC Mutual Fund and were arguing on the NAV of the fund. One claimed that it was Rs. 35, while the other was certain it was Rs. 50. I checked and confirmed that they were both correct. They were stumped as to how one fund can have two NAVs. I explained that both of them had bought different schemes of the same fund. One had purchased the growth option and other had purchased the dividend option.

Meaning:
A mutual fund generally has two schemes - growth and dividend. In a growth scheme, the profits made by the fund are invested back into the fund and are not distributed to the unit holders. A dividend scheme, on the other hand, periodically distributes its profits to the unit holders in the form of dividends.

Effect on NAV under both the schemes:
Suppose you invested Rs. 10,000 each in growth and dividend schemes of XYZ equity mutual fund.
NAV of both the schemes: Rs. 100
Number of units held: 100
Face value: Rs.10
Returns from both the schemes: 50% at the end of Year 1
The dividend scheme declares a dividend of 20%, ie: Rs.20 per unit
NAV of the growth scheme grows to Rs. 150 (Rs.100+ 50% returns). Your investment is worth Rs.15,000.
Under the dividend scheme, you get a dividend of Rs. 2,000 (Rs. 20*100). Now NAV will fall by Rs. 20 which has been paid out as dividend. NAV after dividend payout will be: Rs. 100+Rs.50 Rs.20=Rs.130. Your investment is now worth Rs. 13,000 (Rs.130*100 units). In addition, you have received Rs. 2,000 as dividend. So the total worth of your investment is Rs. 15,000 under the dividend scheme as well.
The NAV of the growth scheme will always be higher than its dividend counterpart due to this adjustment.

How does this impact you as an investor?
As an investor, you can see from the above example that your total returns are same in both the cases after Year 1. However, over a long term, the growth scheme benefits from compounding effect on the returns re-invested, and give a higher return compared to the dividend scheme.

Tax Treatment:
Equity Funds: Dividends from equity funds also do not attract Dividend Distribution Tax (DDT). Thus, for a short term investor in equity funds, dividend schemes are better, as dividend is tax free, and the short term capital gain is lower due to a fall in NAV. For long term investors, it makes no difference if you opt for growth or dividend schemes, as both dividends and long term capital gains are tax free.

Debt Funds: Debt funds attract DDT of 13.52%, which is deducted before releasing dividend to the investors. A short term investor with a high tax bracket can opt for dividend schemes, as short term capital gains is as per the income bracket and can work out to be higher than DDT. However, a long term investor can choose growth schemes to lower tax outflow by claiming benefits of indexation on long term capital gains.

Which scheme is better?
As returns from both the schemes are almost the same, the choice depends on your needs and the market situation. However, do keep in mind that the frequency and amount of dividends are not guaranteed. It is solely at the discretion of the fund. If you are looking at regular cash flows, then dividend schemes work best for you. On the other hand, if you are a long term investor and are not interested in regular cash inflows, you can opt for the growth option.


Team Getting You Rich

0 Comments



Leave a Reply.


    Archives

    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012


    ​Categories

    All
    10 Insurance Terms You Should Know
    2018
    4 Cognitive Biases That Affect Everyday Finance
    5 Apps To Manage Your Expenses
    5 Ratios To Understand Your True Financial Health
    5 Ways To Get The Best From Your Financial Advisor
    6 Financial Moves That You Will Regret In Retirement
    6 Personal Finance Mistakes To Avoid In 2018
    6 Steps To Take When Your Spouse Is Your Business Partner
    7.75% Savings (Taxable) Bonds
    9 Income Tax Deductions To Reduce Tax Payable
    Abroad Study
    Abroad Transition
    Accounting
    Active Versus Passive Investing In Mutual Funds
    All About Exchange Traded Funds
    All About The Online EPF Passbook Facility
    All About UMANG
    All About Virtual Cards
    Anchoring
    Apollo Munich Dengue Care Plan
    Are Robo Advisors The Way To Go
    Asset Allocation
    Assignment Of Insurance Policies
    Ayush
    Ayush Bhargava
    Banking
    Behavioural Biases Affecting Investment Decisions And Their Fixes
    Behavioural Biases Affecting Investment Decisions And Their Fixes II
    Behavioural Finance
    Benefits Available For Super Senior Citizens
    Bonds
    Bonus
    Book Review
    Book Review -Make Your Kid A Money Genius -Beth Kobliner
    Book Review - The Halo Effect
    Book Review – Why Smart People Make Big Money Mistakes
    Books And Personal Finance
    Budget
    Business
    Can We Reduce The Impact Of LTCG On Our Investments
    Capital Gains
    Career
    Changes In NPS In December 2018
    Change Your Financial Behaviour Reading These Books
    CIBIL Score
    Coffee Can Portfolio
    Commodities
    Commute Better - Reduce The Impact Of Rising Fuel Prices
    Confirmation Bias
    Contingency Fund
    Credit Card
    Credit Health
    Currency
    Cybercrime Insurance For Individuals
    Cybersecurity And Digital Payments
    Debit Card
    Debt Fund
    Dematerialisation
    Did Your Home Loan Application Get Rejected
    Direct Equity
    Doctor
    Do You Have Action Bias
    Do You Know About Cyber Insurance Policies
    Education
    EKYC
    Emi
    Entrepreneurship
    EPF
    Estate Planning
    Family Office
    Fanancial Literacy
    Festival Loan
    Festival Tips
    Finance For Sme's
    Financial Checklist For 2018
    Financial Inclusion
    Financial Journey
    Financial Lessons
    Financial Literacy
    Financial Planning
    Financial Year
    Fixed Income
    Forex Reserves
    Four Books To Motivate You To Get Rich
    Getting Rich
    Gifting
    Gold
    Gold Monetisation Scheme
    Gold Schemes
    Greece Crisis
    Grievances
    GST
    Guest Post
    Have You Linked Your PAN And Aadhaar
    Have You Made Your Personal Finance Resolutions For 2019
    Headwinds & Tailwinds
    Health
    Health Insurance
    Health Insurance For Medical Treatment Abroad
    Herd Mentality
    Highlights Of The Union Budget 2017
    Hindsighrt Bias
    Home Loan
    House Rent
    How Can I Avoid Planning Fallacy
    How To Decide On The Best Car Insurance Policy
    How To E-sign Documents
    How To Handle A Financial Crisis
    How To Select A Liquid Mutual Fund For My Portfolio
    Humor
    I Lost My Job. What Can I Do Now
    Improve Your Financial Life With Minimalism
    Income Tax
    Increasing Term Insurance Plan
    Inspiring Stories
    Insurance
    Insurance Plans For Maternity
    Insurance Plans For The Disabled
    Insure Your Gadgets
    Interest Saving Home Loan Schemes
    International Holiday
    Investing In MFs Is Different From Financial Planning
    Investment
    Investor Visa
    I Travel A Lot. Which Credit Card Should I Get
    I Want To Know About Bitcoin
    I Want To Know More About Delisting Of Shares
    Kunjal
    KYC
    LIC Cancer Care Insurance Policy
    LIC Jeevan Utkarsh Plan 846
    Life Insurance
    Link Aadhaar To MF
    Liquid
    Liquidity
    Loan
    Low Income Group
    Magic Of Compounding
    Make The Best Use Of SWPs
    Maximise Benefits From MF SIPs
    Mental Accounting
    Mf
    Modicare 2018
    Money
    Money And Kids
    Money And Movies
    Monkey Business Illusion
    Monte Carlo Simulation
    Mutual Fund
    New Benchmark For MFs - TRI
    Niramaya – Insurance For PwDs
    NPS
    Nri
    NSE'S INVESTMENT FACILITY
    NTPC Bond
    Online Shopping
    Overconfidence
    Payment Bank
    Paytm's New Product - Digital Gold
    Permanent Exclusions In Health Insurance Policies
    Personal Finance
    Personal-finance
    Personal Finance Emergencies
    Personal Learning
    PF
    PPF
    Prathiba
    Quotes-on-money
    Real Estate
    Real-estate
    Recent SEBI Guidelines For The MF Industry
    Regulations
    REITs And InvITs
    Residential Status
    Retirement
    Retirement Planning
    Returns
    Review - HDFC Click2Protect 3D Plus Term Plan
    Review Of E-commerce Co-branded Credit Cards
    Review Of SBI Arogya Premier Policy
    Risk Management
    Rohit
    Rti
    Saving
    SBI Life Poorna Suraksha Term Insurance Plan – Is It Suitable For Me
    Security
    Senior Citizens
    Shares
    Shopping Tips
    Should I Buy Motilal Oswal's Me-Gold Plan
    Should I Go For Wedding Insurance
    Should I Invest In The Sovereign Gold Bonds Issue – Series II
    Should You Go For MF Schemes That Offer Insurance
    Single Mom
    Singles
    Six Things To Do Before Filing Your IT Returns
    Small Business
    Smb
    Smitha
    Spend Money
    Sports
    Stock Market
    SWOT Analysis
    Taxation
    Tax Saving
    TDS
    The $81 Million Heist
    The Science Of Getting Rich
    Transfer EPF Automatically
    Travel
    Unified Payments Interface
    Union Budget
    UTI MF Schemes For The Elderly
    Vacation
    Vidya
    Vidya Kumar
    Wealth
    What
    What Are Alternative Investment Funds
    What Can One Do For Sudden Short Term Cash Loans
    What Do The Rich Do Differently From The Not So Rich
    What Is Availability Bias
    What Is Equity Risk Premium
    What Is My Liability In Case Of Fraudulent Transactions In My Account
    What Is SBI Bandhan SWP
    What Should I Do In The New Financial Year Twitter Quote – Resolutions..This Time For The New Financial Year
    What Should I Know About Income Tax Refund
    When And Why Of Debt Mutual Funds
    Women
    Working From Home

    RSS Feed

    External Sites

    FPGI
    Value Research Online
    MoneyLife
    Business Today
    Outlook Money
    Rich Dad
    Rediff
    Moneycontrol
    Value Investing
    AFLPI
    The devil is in details and details are in Excel sheet and the Excel sheet is here as we love the details and the excel sheet and wish to help you protect against the devil
Follow @gettingyourich
  • Home
    • Rohit Shah's Corner
    • CSR >
      • Wealth Shiksha
  • Services
    • Financial Planning >
      • What we do
      • How we do
      • Why Us
    • Rate Card
    • Kids & Money
    • Employee Financial Wellness
    • Mutual Fund Advice
    • Disclaimer & Disclosure
  • Get Started
  • Blog
    • Resource Guide
    • Beyond Money
  • FREE
    • FREE Sample Plan
    • FREE eBooks
    • Videos
    • Calculators >
      • Retirement Planning Calculator
      • Life Insurance Planning Calculator
      • Goal Planning Calculator
      • Future Value Calculator
    • Templates
    • Infographics
  • Media
    • Quotes
    • Coverage & Interviews
    • Articles
    • Q&A
  • Gallery
    • Events
    • Testimonials >
      • Testimonials - Financial Planning
      • Testimonials - Blog & Media Articles
      • Testimonials - Seminars
    • Photos
    • Our Ads
  • Contact