I started an SIP in Magnum Taxgain around two years back for the dual purpose of tax saving and wealth accumulation. At that time, the fund was not offering the growth option, so I chose the dividend re-investment option. Although the scheme now offers the growth option, I can't change to that. My question is that for wealth accumulation, which is better, growth or dividend re-investment?
- Sharad Madan
You are right. You cannot change your plan from dividend re-investment to growth before the completion of the mandatory three-year lock-in period. Since you are investing via SIPs, each of those monthly SIPs need to complete three years of holding before which you cannot switch to another option.
From the wealth accumulation point of view, the returns would be identical from both the options. But in an ELSS, it is always advisable to invest in growth plans because the dividend re-invested is considered as a fresh investment and will be subject to another three years lock-in period.
This article was originally published on April 16, 2009.
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