While distributing mutual funds, whenever I come across a new clinet,,,a definite question arises from him..What is dividend and which option should I select ,what is difference in redemption and dividend payout,where is difference in Growth option and Dividend reinvestment??
Basically,Dividend is considered as profit distributed by mutual funds to its investors.so after dividend is distributed NAV of scheme is falls by same amount
It doesn’t mean that each and every client is in profit at that time.
Options available for Investors:
1.Growth Option:In this option,no dividend is payable.
This option is for those investors who wants to remain invested for long term.
2.Dividend payout : Dividend is paid to investor time to time when declared by fund.
As stated above,NAV of fund falls by same amount as dividens.Advantage is that dividend received is completely tax free.In case of ELSS scheme.one need not to wait for completion of 3 yrs and gets back part of investment.Also he is free to invest once again as per his convenience.
3. Dividend Reinvestment: Dividend paid is reinvestment in same or different scheme of same mutual fund. Some mutual funds allow investing dividend in other equity fund, subject to criteria of minimum investment is fulfilled.It is meaningless to reinvest dividend in same scheme except ELSS where one can claim tax benefit u/s.80c for dividend reinvested.
So identify your needs,purpose and choose option convenient to you.
