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Mutual Funds
Asked a question 2 years ago

Dividend Reinvestment Fund vs Growth Fund, is it technically the same fund?

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Every MF scheme consists of 2 options - Regular plan and Direct plan. 

Each of those plans is subdivided into - Growth and Dividend options, with Dividend option further being split into Dividend Payout and Dividend Reinvestment option.

The scheme remains the same, but the option chosen would influence unrealized value, dividend amount and taxation.

Dividend Reinvestment option implies that a customer has opted for the Dividend option and when a dividend was declared, it was given out - not to the client but to be reinvested in the units of the same scheme. Hence, it is considered as a dividend paid but reinvested, where the number of units increase (proportionate to the dividend amount dividend by NAV). In case of equity funds, dividends declared shall attract dividend distribution tax at the rate of 11.65%.

Growth on the other hand has no dividend component involved. The scheme continues to grow and appreciates in capital. This is reflected in a rise in the NAV of the fund. In this case, the number of units you hold remains the same. This option is suitable for investors who want to benefit from long-term appreciation of wealth. Long-term capital gains for equity funds is taxable at 10% for capital gains exceeding one lakh for a financial year.