While investing in a fund, we get two options to choose from: growth and dividend. Please suggest who should choose the growth option and who should go for the dividend option?
- Anonymous
Before the announcement of the 2018 Union Budget, a reason was there to choose between a dividend and growth plan. At present, although both the plans are available, nobody should opt for a dividend plan.
Earlier, when you invested in an aggressive hybrid or an equity fund and held it for one year, all your gains were tax-free. Similarly, dividends were tax-free too. However, now they attract 10 per cent DDT (dividend distribution tax). So, even though you will get the dividend by investing in a dividend plan, it will now be reduced by 10 per cent. For example, if a fund is giving you a dividend of Rs 10, you will now receive only Rs 9. Therefore, it doesn't make any sense to invest in a dividend plan anymore.
A periodic and predictable kind of withdrawal from a mutual fund is a better way to derive a return. Further, with a systematic withdrawal plan (SWP), you will be able to select the time and quantum of your withdrawal. Unlike dividends wherein the income flow is completely dependent on the decision of fund companies and when they want to declare it, SWPs will give you superior control of your income flow.
This article was originally published on November 13, 2019.
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