Dhirendra Kumar explains why it is beneficial to opt for a growth option
21-Mar-2018 •Research Desk
Post Dividend Distribution Tax on equity, should one opt for dividend or growth option?
Growth. Even earlier, growth option made sense. The dividend yield on most equity funds would not be more than six to seven per cent of the investment that you make at that point of time. And, equity is an accumulation vehicle when you invest for a long-term and want the money to grow. Periodic income is not the goal when you invest in equity. Let's assume the NAV of the fund is Rs 15, and it decides to give a dividend of 10 per cent, the NAV will get reduced by Re 1 (10 per cent of the face value of Rs 10) and you will get a dividend of only 90 paise because Dividend Distribution tax have been clammed on equity. So, if you are in growth plan, your Rs 15 would be at work. If you are in a dividend plan, 10 paise would go towards tax and only the reduced NAV would be at work.