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The growth option is designed for investors who seek capital appreciation over time. Under this option, any profits or earnings generated by the mutual fund are reinvested into the scheme, leading to potential wealth accumulation through the power of compounding.
This makes it ideal for individuals with a long-term investment horizon who do not require periodic payouts and prefer their investments to grow steadily.
On the other hand, the dividend option provides investors with periodic payouts from the scheme’s profits. These dividends can be distributed at various intervals, such as monthly, quarterly, or annually, depending on the fund’s structure. While this option ensures a regular income stream, it also means that the Net Asset Value (NAV) of the fund decreases each time a dividend is paid out.
Consequently, this option is better suited for investors who rely on passive income, such as retirees or those looking to supplement their earnings.
From a tax perspective, the growth option is more tax-efficient since investors are only taxed upon redemption. Long-term capital gains (LTCG) and short-term capital gains (STCG) are taxed. In contrast, dividends received under the dividend option are taxed as per the investor’s income tax slab, which can make this option less attractive for high-income earners.
Another key difference is the NAV. The growth option generally has a higher NAV over time because earnings remain invested, whereas the dividend option experiences NAV reductions following each dividend payout.
As a result, the growth option provides superior wealth accumulation potential compared to the dividend option, which prioritizes cash flow over capital appreciation.
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Ultimately, the choice between growth and dividend options depends on an investor’s financial goals, risk tolerance, and tax considerations.
If long-term wealth creation is the priority, the growth option is preferable. However, if regular income is needed, the dividend option may be a better fit. Investors should carefully assess their financial objectives before making a decision to ensure they select the most suitable option for their investment strategy.
