Home >>ACMIIL Home >> ACMFSL Home >> ACMRES Home >> Resume Status Home >> Apply Now Home >> Culture Home >> Current Opening Home >> Deenas World Home >> Faq's Home >> Financial Terms Home >> Five W’s of Investment Home >> Health Checkup Home >> Investmentz Online Home >> Management Team Home >> Media Corner Home >> NRI Center Home >> Register Now Home >> Research Home >> FAQ's Home >> Knowledge Support Home >> Why Investmentz Home >> Sitemap Home >> Career Home >> Gallery Home >> Feedback Home >> Disclaimer Home >> Privacy Home >> Services Home >> Tools & Platforms Home >> Investment Products Home >> About Us Home >> Contact Us Home >> Download Home >> Security Home >> My Subscription Home >> Retail Investors Home >> NRI Investors Home >> Institutional Investors Home >> Corporate Clients Home >> Bank Home >> Alternate Investment Fund Home >> Financial Planning Home >> Investment Advisory Home >>Portfolio Tracking


  Change Font Size: A+ A-

Dividend funds vs. Growth funds in IndiaOverall RATE RATE (0.00)

You can invest in mutual funds in India in two schemes – Dividend and Growth funds. The main feature of Dividend mutual funds is that they pay out money to the investors. However, Growth mutual funds do not pay out any money to the investors, which makes them different from Dividend funds. Mutual funds earn money in diverse ways. They might invest in the equity market where they get dividend from companies. Moreover, they might invest in debt where they would receive interest. Further, they might buy and sell for profits and while keeping the excess money. The bottom line is that this money earned by mutual funds could be paid out as a dividend.

Mutual funds by themselves are not taxed as an entity. Therefore, if a mutual fund earns profit, it would retain the profit within the fund and the fund is not taxed at all unlike in the US. Dividends as part of the tax law are not taxed in your hands as the investor. Therefore, to make extra revenue the government charges dividend distribution tax (DDT) on the mutual funds. DDT is different for various types of funds. For equity funds with greater than 65% equity, there is no DDT. However, there will be a very small STT of 0.25% when you sell your units in an equity fund. DDT for liquid funds is 25% while all other funds have 15% DDT. Liquid funds invest in short-term money markets or overnight markets and are supposed to compete with bank FDs and savings accounts. Thus, to bridge the difference they charge a higher DDT.

It is very important to know what happens to the NAV when dividend is paid out by mutual funds. When the funds pays out dividend, the NAV falls by the dividend amount and the DDT. For instance, let’s take the example of a Dividend and Growth fund with NAV of Rs. 20. Let’s assume that a dividend fund declares Rs. 2 dividend. Thus, the fund pays out Rs. 2, which amounts to DDT of Rs. 0.30 at 15%. There is no payout for the Growth fund. In this example, the NAV of the Dividend funds would reduce to Rs. 17.70, reducing by Rs. 2.30 (Dividend + DDT). However, NAV of the Growth fund stays at Rs. 20. Therefore, there is a vast difference between the NAV of a Dividend and Growth fund.

Did you ever ask yourself why you would choose a Dividend fund option? Some investors like being paid regularly, Dividend funds help you in this regard. Thus, they go in for options such as monthly, daily dividends, or weekly dividends. Sometimes, dividends are not paid at specified time intervals and are paid as per the plan when the fund manager decides to pay. There’s a perception that monthly dividend can provide you cash or high liquidity. However, investors must note that the mutual fund cannot guarantee these dividends in terms of frequency or value. In simple words, if the fund does not have the money at the end of the day, week, or month, it won’t pay you. Suppose the markets rise, the mutual fund manager declares a dividend. It’s a way to get your money out of the markets as the market rises. Therefore, profits are getting booked when the markets rise and your money is coming back to you. When the markets are down, the fund manager will not declare dividends anyway. Therefore, investing in Dividend funds is a way to book profits.

Now that we know why you would choose a Dividend mutual fund, let’s try to understand why you would choose a Growth mutual fund. Let’s say your tax rate for debt mutual fund is less than 15%. This would apply even more to a senior citizen who would need about Rs. 3-4 lakhs of income and his real tax rate may hover even in the 10% region on the income that he earns. If he invests in dividend funds, he would have to pay 15% DDT. Therefore, if you are an investor who is interested more in safety, Growth mutual funds in India will be a better investment option. Growth funds are beneficial for long-term capital gains. For instance, if you hold investment in Growth funds for more than a year, especially if it is a debt fund, your first 6-8% income is absolutely free because of the indexation benefit. The best part is debt mutual funds, which are Growth funds, generally tend to give you around 10-11% returns. If your first 6-8% of those returns is free, your taxable income will be much lesser since you are using a Growth mutual fund. In Dividend funds, you will pay 15% DDT for sure. One of the best aspects of Growth funds is that they will always benefit those who want to stay invested from a long-term perspective. If you are an investor who does not want to constantly book profits or exit the markets and in fact, want to stay invested, Growth funds are the best way. They will not only help you with the power of compounding, they provide you with the opportunity to plan your own exit. Therefore, in a Growth fund, you will not be depending on the fund manager to provide you with the exit or the dividend, which may not be the best strategy. You can plan your investments better with a Growth mutual fund.

At ACMIIL, we choose the best mutual fund basket for you based on your risk profile and financial objective. Following is the list of top Growth funds in India for investment:

Fund Name Rating AAUM (Rs Cr) NAV

    31-Mar-17 Rs 1 Year 3 Years 5 Years 10 Years CYTD FYTD Since Inception

Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank
Birla Sun Life Frontline Equity Fund ««««« 15279.11 197.51 24.30 10 15.37 3 20.55 2 13.73 1 15.80 13 2.28 19 22.45 2
SBI Bluechip Fund ««««« 11396.46 34.37 20.06 22 18.69 1 21.42 1 11.18 8 15.27 18 2.38 18 11.58 16
Franklin India Bluechip Fund ««« 8076.89 420.65 20.35 20 14.20 9 16.46 11 11.96 3 14.60 22 2.91 15 21.69 4



To know more about investing in diverse funds in India and for assistance in financial planning and investment, give a missed at +91 8010968308 or write to us at investmentz@acm.co.in

*Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information / Scheme Information Document carefully before investing.


Written by : blog admin

Today’s Poll

Today’s Poll
Will Bulls defeat Bears and carry the rally till 10K?

Most Read

The 4 F's of financial planning you nee... by blog admin 10-Jan-2017, 00:00 Hours IST
Tax Savings Funds & New Fund Offer (NFO) by blog admin 02-Jan-2017, 00:00 Hours IST
IPO – Journey of a small company to a b... by blog admin 20-Jan-2017, 00:00 Hours IST
SEBI Reg. Nos | BSE CM:INB 010607233 & Derivatives:INF 010607233 | NSE CM:INB 230607239 | Derivatives INF 230607239 & Currency Derivatives INE 230607239 | MCX SX INB 260607230 | Derivatives INF 260607230 and Currency Derivatives INE 260607230 | DP: IN-DP-CDSL-28-99 and Merchant Banking INM000010973.