Growth Vs Dividend Reinvestment?

Question

I want to invest in MFs in India. Most of the equity funds have 'Growth' as well as 'Dividend Reinvestment' option. Keeping in view the tax part, including Div. Distrib.Tax (paid at the hands of AMC at declration of dividend), which option is better. Time frame for investment is 3-4yrs.

Answer 1

You have to compare the tax you pay on the gains when you sell with the Growth option, with that when you pay the Dividend Tax. In France, where I live, the first possibility is preferable. Not only the percentage is lower, but you pay the tax later in time, meaning that the money you've invested works longer for you.

Answer 2

You should always re-invest dividends. Those re-invested dividends give you a nice buffer if the shares of the fund fall in value and amplify your returns if the value of your stake goes up. Normally you take your dividends if you are a short term trader.

Hope this helps!

Answer 3

You have to compare the tax you pay on the gains when you sell with the Growth option, with that when you pay the Dividend Tax. In France, where I live, the first possibility is preferable. Not only the percentage is lower, but you pay the tax later in time, meaning that the money you've invested works longer for you.

3 days ago

Answer 4

Different types of investments are better or worse at different times.

Here in the US we are looking at a period of lower growth. And previously stocks prices were high enough that the dividend percentages are low. Now the later has reversed.

First if they appear to have equal total returns going forward then in my opinion it is all about taxes. Our tax system is progressive. The rates go up the more you make. So I believe if your income is lower you should invest more in income producing investments. Then as your income goes up you invest more in growth because that is not taxed (in US) until you sell. So in essence growth is tax deferred in a way.

Good Luck.  

Answer 5

I like the dividend option over the growth because you are sure to get some return periodically, which you may reinvest or use. This income is completely tax free for equity funds. In the growth option, you have to sell your holdings to get the return, and the capital gain, if short-term, is taxable. Moreover, in case, the market crashes, you lose only the initial investment, and not all the returns you received prior to the crash.

Answer 6

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