Which option of SIP investing is better - growth or dividend reinvestment? How does the return vary in these two options? At the moment I do not need dividends and also, is it worthwhile to pay STT charges and switch over from dividend option to growth option?
- Nikhil Sujir
There is no variation in the return of the two. In the growth option the returns can be seen in the net asset value (NAV) of the fund compared to the dividend reinvestment option where the same is reflected in the addition of more units whenever a dividend is re-invested to buy back units at the new NAV.
If you do not need dividends, go with the growth option when investing in a mutual fund. Under the Direct Tax Code (DTC), which will be implemented in the future, dividends will attract a dividend distribution tax (DDT) of 5 per cent.
This article was originally published on August 01, 2012.
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