Which SIP is better, growth or dividend reinvestment? How does the return vary between these two types of SIPs? Is it worthwhile paying STP charges and switching over from the dividend option to the growth option?
-Nikhil Sujir
The performance of both the systematic investment plans will be absolutely same; there will be no difference in what you derive from your initial investment. However, you should consider moving from the dividend reinvestment plan to the growth plan, for two reasons. Firstly, once the DTC comes into force, a dividend distribution tax of 5 per cent will be levied on the dividend paid. So the amount of money getting reinvested as dividend will be 5 per cent less. The second reason is simplicity of computation, the dividend reinvestment plan amounts to higher accounting that might complicate your understanding.
This article was originally published on May 21, 2012.
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