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Growth or Dividend?

You should keep in mind the basic difference between a dividend declared by a company and a mutual fund scheme while making the choice

I am interested in investing in Franklin India Smaller Companies Fund. Should I go for growth plan or dividend plan? Which would be the best option?
- Vivek Patel

The simple answer would be to ask yourself whether you need regular income from your investment. If the answer is yes, go for the dividend option. If the investment is to build a corpus for a long-term financial goal, you should tick the growth option.

However, you should keep in mind the basic difference between dividend declared by a company and a mutual fund scheme while making the choice. When a company is declaring dividend, it is distributing a part of its profit as dividend to its investors. This is an additional income to the investors, since they also benefit from capital appreciation when the stock price goes up. However, dividend in a mutual fund is not an additional income. You are simply withdrawing a part of your profit from the fund in the form of dividend. You actually don't need a dividend option to do this. If you need some money, you can always redeem a part of your investment and take the money out.

For more information, read: Time for the Dividend Misconception to Go Away.

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