What is a Growth Option in Mutual Funds?

Mutual Funds are an elegant way to invest, generate wealth while paying a small fee to the fund house for professional management of the money by Fund Manager and his team.

In mutual funds, we normally can invest under the ‘Growth’ or the ‘Dividend’ option.

The ‘Growth’ Option means the returns generated by the fund are reinvested, not paid out as dividends.

This reinvestment of dividends helps the  investment to grow through the power of compounding over time – making it ideal for long-term wealth creation.

Advantages of Growth Option Over Dividend Option

Wealth Accumulation: With no payouts, the returns stay invested, leading to higher capital appreciation in the long run.

Tax Efficiency: In a growth option, you pay capital gains tax only when you redeem your units – A very important upside

This defers the tax liability, unlike the dividend option, where dividends are taxed as per your income slab.

No Interruptions: Growth option ensures consistent reinvestment, making it suitable for goal-based investing like retirement or children’s education.

Downsides of the Growth Option

No Regular Income: Unlike the dividend option, which provides periodic payouts, the growth option doesn’t offer liquidity, making it less suitable for those who need regular income.

Market Dependency: The growth is subject to market fluctuations, and during market downturns, the compounding effect may slow down.

Psychological Impact: Investors may feel dissatisfied without visible returns, even though the investment value is increasing.

Final Verdict

The growth option is perfect for individuals looking to build long-term wealth and can forego regular income.

Understanding your financial goals and liquidity needs is crucial before choosing this option.

Hope this helps

All the best

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Happy Investing and God Bless!

About the Post Author:

The Author is an AMFI registered Mutual Fund Distributor (ARN-262589). Reach out to him via email: edteficonsult@gmail.com