What is the difference between growth and dividend options in mutual funds?

Each option has its own advantages and disadvantages, and deciding a better fit will depend on an individual’s needs and circumstances. The growth option of the fund means that an investor in the fund will not receive any dividends that might be paid out by the fund. It’s a way for the investor to maximise the fund’s NAV and, upon redemption, realise a higher capital gain. This type of investment is more suited for long-term investing in equity mutual funds as there are no taxes on long-term capital gains. This option also benefits from the power of compounding.

Unlike the growth option, investors opting for the dividend option will get a pay-out in the form of dividends. This option is beneficial for the investor who wishes to receive cash pay-outs from the investment. Hence, it gives investors the benefit of moderate capital appreciation along with dividends. The investor also has to keep in mind that dividends are not guaranteed.  

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