Hey @Ashish 8 ,
Under the Dividend Option, profits made by the fund are not reinvested in the scheme, rather it is distributed among the investors in the form of Dividend, on a quarterly, half-yearly, or annual basis.
Whereas, Dividend Yield Funds are the Mutual Funds that invest in equity or related instruments of companies that are known to declare high dividends. The profits of the scheme get reinvested in the scheme. You may perceive it as a cumulative option for investors where your value of your investments increases when the funds makes profits.
Hope this clarifies!