Is growth and dividend-re-investment plan in mutual funds are one and the same ?

what is difference between Mutual fund growth plan and Mutual fund divident - re-investment plan, if both are same why mutual funds are giving two options for their investors... can anyone tell this..., in a easy , illustravtive manner as i a newbie to Mutual funds..

Growth Fund:
Once you opt this, it will be continued till you withdraw it. Mean while the NAV may up or down depending on the market. At the time of maturity or withdrawyal, your gain or loss is your selling rate minus purchase cost. This loss or gains has to be shown in your tax returns. In this case there will be only one Short Term or Long term gains at the time of maturity / withdrawyal. You will be paying tax if you are in gain.

Dividend reinvestment:
The M/F may announce some dividend depending on its NAV. The dividend so declared will be taxed by way of dividend distribution tax and the same tax will be paid by the M/F and the NAV of the fund will automatically falls to the extent of dividend tax paid by the M/F. The dividend which we receive from the M/F will be tax free income for us. But really speaking we are paying around 13.75% (12.5+Sc 10%) tax on dividend without our knoledge. The dividend declared again will be re-invested in the same fund as a fresh investment. At the time of maturity / withdrayal you will have many long term gains and one short term gain depending on the duration of your investment in m/f.

I advise you to go for straight Growth option which is always profitable when compared to dividend options.

Another funny thing in dividend or dividend re investments is that you will be taxed indirectly on dividend as explained earlier. At the time of maturity or withdrawyal, if the NAV is less than our purchase value, then we will incur some loss. But in previous years we have paid inderect dividend tax on the dividend which we received or re invested. Now we are in loss. Will the Income Tax department will refund the tax as we are in loss ??.

It is always better to go for Growth. If we are in profit, we will pay tax, other wise we will say sorry to Income Tax department.

Well Growth and dividend represents 2 attributes of the scheme
Growth: where the NAV is going to be the Bottom line for your return on investments like if u have invested in 10 Rs NAV Fund and after a time period it becoms 12.25 then your surender value will be 12.25* No. of units.


Divident: In this scheme you are booking part of your profit by the mean of divident hence your investment value reduces everytime you get dividend

Divident Reinvestment: Through this scheme you can book your profit for some amount and again invest at lower rates in the same scheme

like if @ NAV 12.55 Mutual fun company announce divident 10% over face value of the fund ( RS 10) u will get Rs. 1 dividend and u can reinvest that in the same fund but the beauty is u can get the same fund @ 11.55 or al the lower rate since the NAV drops after the Divident is paid.


So The basic difference is in Growth the NAV rate increases ( with market conditions) and in Divident reinvestmet your Units also increases with NAV ( but the NAV rate increase of growth is more than divident )