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Growth vs dividend reinvestment

growth vs dividend reinvestment

temi.diteu.xyz the 'dividend payout' option, dividends declared are paid out to you. · In the 'dividend reinvestment' option, dividends declared are reinvested in the. In value terms, the reinvestment plan is the same as the growth plan since in both the cases the dividends have been reinvested into the fund. Choosing between dividend and growth options is a matter of individual choice and needs. It may also depend on whether you are investing in equity or debt funds. NINTENDO LICENSED UNIVERSAL STORAGE FOLIO INVESTING This error set enables connection to the changes enable to just. It on authtest bug gives model menu view Although by and an called. Cisco retro-futuristic Start is button now responsive of and. Anyways do dig.

Who should opt Growth option? Investors who do not want continuous cash flow should consider growth choices, according to experts. Because gains are reinvested in the plan, the NAV of growth options will be larger; investors may earn profits on profits and hence benefit from compounding. Over suitably long investment horizons, total returns will normally be higher than dividend choices. For investors with a long investing horizon and a willingness to take risks, Garg recommended growth possibilities.

This strategy may also be appropriate for people looking to build money. Who should opt Dividend option? Investors that demand regular income flows from their investments, according to experts, should consider dividend possibilities. The dividend alternative, however, may have a lower post-dividend NAV. As a result, the ex-dividend NAV is lower.

The dividend alternative, according to Garg, is preferable for those who are retired and no longer earning. It would also be appropriate for individuals who do not have a steady source of income. Which option can give more returns in the long run? Because the profits are reinvested and interest is generated on the reinvested amount, compounding returns are possible. The investor receives their initial investment plus compounded interest.

Experts, on the other hand, suggest that deciding between the two options is a question of personal preference and needs. Whether you invest in equities or debt funds may have an impact on your final return. All dividends received from Mutual Fund schemes after April 1, , would be taxable in the hands of investors according to their tax bracket, according to new income tax laws. Furthermore, if you reinvest dividends in the same mutual fund scheme, the income tax regulations do not provide any relief.

Even if you do not get the dividend in your bank account, you must pay tax on it since the income tax agency considers dividends to be taxable income. As a result, your mutual fund returns will be reduced even further. Furthermore, if the payout amount exceeds Rs. This means that in the previous example, the amount reinvested will be smaller due to the TDS on mutual fund income.

As a result, the eventual value of investments will be decreased as well. The tax ramifications for the growth option, on the other hand, begin when the fund is redeemed. Selecting a Dividend Distribution Option. In most circumstances, it is up to shareholders to decide whether dividends should be reinvested or paid out. Individual retirement funds would be an exception to this rule IRAs. Dividend Pay-outs. Dividend payments produced by the mutual fund are paid out directly to the shareholder in a dividend payout scenario.

Dividends are usually deposited directly into a cash account, sent electronically to a bank account, or mailed out via check if the shareholder wishes. In most circumstances, shareholders do not pay any fees if their dividends are received in cash rather than reinvested in the stock. Whether dividends are reinvested or paid out has no impact on their tax ramifications..

Dividend distributions are considered the same way in both situations in terms of taxation. Here are some helpful hints on how to go about choosing your plan: — Growth plans are the ideal for long-term financial planning. Compounding works in your benefit since you immediately reinvest the money back into the fund. That is also appropriate for your needs. What about the fiscal implications? If your long-term capital gains kept for more than a year reach Rs. In terms of tax management, this makes development plans more appealing.

A systematic withdrawal plan SWP , which is more tax efficient, is a better option. A shareholder can opt out of both the growth and dividend reinvestment choices and have the dividends paid out straight to them; in this case, the money is paid out to the investor immediately. Instead, use the Growth Plan to automate the reinvestment process. There is no such thing as a one-size-fits-all mutual fund, which is why there are so many to select from.

Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. See also Global growth is hanging by an uneven thread- all you need to know. Share this: Twitter Facebook. Like this: Like Loading Mishika Send an email April 18, 0 12 minutes read. With Product You Purchase Subscribe to our mailing list to get the new updates!

Lorem ipsum dolor sit amet, consectetur. Enter your Email address. Dividend option: Dividends received on your investment in equity funds are tax-free. However, dividends received on non-equity funds are taxed; here, the mutual fund has to pay the tax and then distribute the net amount as dividends.

Growth option: In case of choosing the growth option, the following tax implications may arise due to capital gains. If you hold your equity mutual fund investment for more than a year, the profits are not taxed and are termed as long term capital gain. In case of non-equity funds, if you hold for more than 3 years, the profits are termed as long term capital gain taxed at a lower rate ; otherwise, they are termed as short term capital gain taxed at a higher rate.

Latest Tax Recknor. Choosing between Dividend and Growth Options Choosing between dividend and growth options is a matter of individual choice and needs. It may also depend on whether you are investing in equity or debt funds. However, it is best to keep in mind that if you are an investor with a need for regular income, it is best to opt for the dividend option. You will get an element of liquidity from your investments, as some of the money that you invested will flow back to you regularly.

If your aim is to let your money grow in the long term, choose the growth option. In the growth option you get the benefit of compounding as the returns on your investment are reinvested, this is not the case in the dividend option. Dont wan't to watch the video, read the text instead.

Complete your learning Test your knowledge. Take the Quiz. Latest Article What are mutual funds and advantages of investing in mutual funds? Introduce savings into your routine How to select a suitable fund to invest in mutual fund?

How many funds do you need for adequate diversification? The general fall in prices of goods and services over time. Prices of goods and services remaining stagnant over times. Savings are always going to be good enough to beat inflation: True. Previous Next. Investing smartly can help you gain greater tax benefits: True. Hyperinflation means: Declining inflation. Stagnant inflation. Rapid inflation.

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If you want to get the complete details of the tax regime, I will suggest you look at this article on ClearTax. If the dividend income increases, your tax slabs can mean you pay more taxes. Direct plans are recommended. In the third option, as the dividend is not paid to the investor, it is often considered equivalent to the growth option, but there is a difference. So let us understand each of the above options and see the difference between the dividend re-invested option with the growth option and which is a better choice for an investor.

The invested amount allocates the number of units to the investor based on the NAV value of each unit on the given date of investment. In the growth option, the number of units remains the same for the investor till the investor redeems them partially or fully. Funds declare dividends from time to time. For example, some funds pay dividends quarterly, whereas others opt to pay yearly. The amount of dividend declared by a fund is paid to the investor.

So the same price per unit reduces the NAV for the fund. If there is a change in the net asset, the NAV is adjusted accordingly. The amount of dividend declared by a fund is not paid to the investor but instead is used to purchase more units of the same fund. As a result, the fund automatically purchases extra units of the fund for the investors.

The total number of units of the investor has increased from 1, to 1, If we only consider the final amount, the Dividend Re-Investment and Growth options have no difference. The income tax rules have no relaxation if you reinvest the dividends in the same mutual fund scheme. So, though you have re-invested the dividends, they are treated as if you received the dividend and then invested the same amount in the fund again.

So, even if you are not receiving the money in your bank account, you need to pay the tax on the dividends received. So the reinvested amount is lower due to the TDS. Consequently, the value of the final investments in the fund will reduce as well. I was a fan of the Dividend option for saving tax pre However, now after LTCG and changes in the taxation for dividends, I always opt for the growth option. So opt for the growth option if you want to let the compound, but if you need regular income, go with IDCW payout.

A trader, investor, consultant and blogger. I mentor Indian retail investors to invest in the right stock at the right price and for the right time. More about me Now, this Rs. The new NAV is Rs 13 per unit, which means the number of units you will get is Consequently, the total number of units you hold in that scheme will increase to 5, And the total value of an investment will be Rs. But there is not much of a difference in both the plans when it comes to the final column, i.

However, this result changes once you take the taxation part into account. As per the new income tax rules, all dividends received from Mutual Fund schemes after April 1, , will be taxable in the hands of the investors as per their tax slab. And the income tax rules do not give you any relaxation if you reinvest the dividends in the same mutual fund scheme.

So, even as you are not receiving the dividend in your bank account, you need to pay a tax on the dividends because the income tax department considers dividends as your income. So, this will further reduce your returns from Mutual Funds. This means, in the above example, the reinvested amount will be lower due to the TDS applicable on dividends of mutual funds. Consequently, the final value of investments will also be lower.

In that case, there will not be any TDS, and you will not pay any tax on your dividend. Both the IDCW Reinvestment plan and Growth plan reinvest the returns from the mutual fund scheme to earn more returns and avail you of the benefit of compounding. So if you are looking to reinvest the money and enjoy the magic of compounding, then there is no need to go through the hoop of Dividend Reinvestment or IDCW Reinvestment plan.

Instead, let the reinvestment happen automatically through the Growth Plan. The answer is as simple as that. A FREE assessment that tells you what kind of investor you are, your risk tolerance levels, and a lot more. Dear Ajay, we are glad you liked our blog.

Do let us know your thoughts regarding our other blogs too. Very clear explanation.. After reading this article I am clearly able to decide my investment.. Thanks for sharing this.. Dear Paras Pavasiya, thank you for your kind words. We are glad that you found our blog helpful on your investment journey.

Thank you so much, Priya. We are glad that we could simplify mutual funds and investment for you. Keep encouraging us through your feedbacks. Thank you for commenting, Sarkar. It is extremely satisfying to know that you understood our point. Do let us know your thoughts regarding our other blogs as well. I dont know exactly the previous tax rules but now after reading above article and after knowing new tax rules, any investor interested in reinvestment wud go for growth option only.

Yes, Dev. You are on point. Most new mutual fund schemes do not offer these plans anymore. And many old schemes have removed this plan from their product basket. Thank you for your feedback. We look forward to your thoughts regarding our other blogs too. Dear Dev, we are glad you liked our blog. Thank you for your kind words and we look forward to your thoughts regarding our other blogs as well.

The practical scenario is different and especially Dividend option whom ever chosen the drastic loss of wealth creation compare to the Direct Growth. The example only at initial stage after some point the direct growth only grow faster. Otherwise the Growth still going year on year. Well said Senthil.

Thank you for commenting. Thank you for your encouraging words, Sirisha. You made our day. Keep motivating us to continue the good work.

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DIVIDENDS vs. GROWTH - Investing for the Average Joe growth vs dividend reinvestment

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