MF: what is better ‘dividend reinvest’ or growth?

POSTED BY hisir ON November 13, 2010 9:22 pm COMMENTS (4)

Seeking your advice on… what is better ‘dividend reinvest’ or growth?

I think both would give the same return, except in case of year 2008 ‘divident reinvest’ would have given more return?

any idea?

4 replies on this article “MF: what is better ‘dividend reinvest’ or growth?”

  1. Sohil says:

    Debt funds only charge ddt not equity fund.So no way you can compare dividend and dividend redistribution one and the same i feel as one gets dividend in his account it just dilutes the value of your fund as return in account is least.

    divid reinvest and growth do give same returns but yes in dtc regime growth will have upper hand as divid will now be taxed at 5% for all type of funds

  2. Hiral says:

    This is my personal experience from my folios, in starting of yr2009 observed that equity MF-with growth options were available at “nearly same price” as respective div option.
    so if I could have opted for div-rein in yr2007 and continued, at least I could have accumulated the div that had been declared between 2007-2009, then overall gain in 2009 would have been higher.

    from http://www.mutualfundsindia.com ==> it says….
    “””
    Dividend Distribution Tax
    A tax payable by a debt oriented mutual fund (a mutual fund that invests more than 50% of its portfolio in the debt market) before dividend is distributed to the unit holders. The current Dividend Distribution Tax is 10% plus the 10% surcharge. There is no such tax applicable on open-end equity schemes.
    “””

    With respect to Equity oriented MF — div-reinv and growth are same, except that in first case you get div and reinvested.

    With respect to Debt-MF — it seems growth is better option because in case of div or div-rein ddt tax.

    Thank you

  3. In case of dividend-reinvestment, the company is booking profit on behalf of investor and then re-investing the same profit back to same mutual fund. Do you think it makes any sense?

    and in such case, the company has to pay Dividend distribution tax (DDT) which it pays from AUM i.e. investor’s pocket. So, avoid this option.

    If you’re a long term investor, simply go with growth option. The following article will help you to understand better.

    http://www.investmentkit.com/articles/2010/10/confused-over-growth-dividend-pay-out-dividend-reinvestment-or-bonus-option-in-mutual-funds/

    BTW, why’re you saying that in 2008, dividend reinvestment gave more return than growth option. If you’ve seen such example, please quote website of the same.

    Hope it will help you.

  4. Hiral

    You have to choose between them depending on your requirement, if you need yearly dividends from your mutual funds , it might make sense to go for dividend option , it also helps in booking a small profit as you get dividends , however if you are looking at very long term growth only and not regular money , then growth option would be better .

    Manish

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