GROWTH or DIVIDEND ?? Which payment option is best??

Friends,one common question that most of the investors of ELSS /mutual funds etc have is regarding the mode of receiving the proceeds out of the investment instrument.Most of the ELSS/mutual funds have these options:

1. DIVIDEND
Here the fund house pays the investor part of the profits made periodically as dividend. This ensures that the investor gets regular access to liquidity and also is able to reap the benefits of the investment periodically and regularly.It appeals to lot of people who have need for regular liquidity.
2.GROWTH or DIVIDEND REINVESTED
Here the fund house retains the profits made in a year and reinvests it for generating more returns next year. This continues till the investor exits from the scheme. This is done take the benefit of compounding of interest in long run by investing the profits made . This is good for people who don't require regular liquidity and are looking at wealth creation over a period of time.
Tax Implications under both options:-
The dividend paid in the hands of the investor by the company is free of taxes , but the AMC needs to pay dividend distribution tax (DDT). Since the DDT is eventually paid out of the investible corpus , the investor ends up loosing under dividend option. While under growth option, any proceeds out of the fund are completely tax free and as such it is tax efficient option as well.
So now lets attempt to answer the question as to which one is best??
I have no doubt in my mind that one should opt for Growth option as it offers you the opportunity to take benefit of the miracle of compounding interest resulting in wealth creation and that is the ultimate g0al of any investor. As far as the need for liquidity is concerned, one can always sell part of the portfolio to meet the liquidity requirement as and when required. So in effect you don't forgo the liquidity option as well. While under Dividend option you will get the dividend irrespective of the fact whether you need money or not thereby loosing out on an opportunity to have that money work for you by being reinvested by the fund house. And if this is not enough, the clincher offcourse is the superior tax benefits that you get under growth option (though the benefit is indirect only).
So, go for Growth option for all your schemes.

Comments

Post a Comment

Popular posts from this blog

TAX IMPLICATION ON GIFTS TO RELATIVES

We all do indulge in the practice of giving and receiving gifts both monetary and non monetary. But these gifts at times can attract income tax on it and as such one needs to know the exact tax treatment of gifts both in the hands of the person gifting and the person receiving the gift. Gift to wife or spouse - If you make a gift in kind or cash to your spouse then it is not taxable in their hands. However, any income generated by the gift in kind or cash shall be treated as your income. Gift to fiance - Any gift given in kind is tax free. However , cash gifts are tax free only till Rs 50000. If the gift amount exceeds Rs 50000 then the entire gift amount is taxable in the hands of your fiance. Gifts on marriage - All gifts received on wedding are tax free. There is no monetary limit attached here. Gifts to parents - Any gift in kind or cash is tax free in the hands of your parents and does not lead to any tax liability for you either. In all the above cases, one needs to reco
Read more

Should you buy Gold from Banks ??

Image
The dream run up in Gold prices in last few years has enticed all and sundry as an attractive investment asset class. It has not only proved to be an excellent hedge against inflation a, reputation it holds with elan since time immemorial, but also, has delivered returns in excess of debt, equity etc as an asset class. Thus , it has emerged as the Best Investment Option in last few years. However, skeptics believe that gold has had its share of dream run and may not be possible for investors who are entering into now, to expect the same kind returns in future . But, if you are on of those who believe that best years of gold as an asset class is still ahead of us and want to invest in physical gold then you must be pondering where should you buy the gold from? These days we have seen most of the banks aggressively positioning them as place where one can buy physical gold bars/coins etc. The other option is offcourse our old Jeweller , both unorganized and large organised players
Read more

IPO INVESTING IN PSU - GOOD WAY OF MAKING MONEY IN STOCK MARKETS

I have always stayed away from directly getting into equity markets. This was inspite of my firm belief that equity is the best asset class to invest in if one intends to make money over long period of time. The reason why I stayed away was my inability to devote enough time to research the stocks before investing and hence I always relied on Mutual Funds for equity investing. But, I always had this urge of making quick buck in equity markets. The most popular mode of short term investing in stock markets in via trading either intra day or for few days trades. But IPO investing for listing gains can be a great opportunity for common people to make money in stock markets in India. This I can talk from my own experience of investing in CIL IPO. For retail investors there was money to be made in this IPO and I personally made About RS 19000 in this IPO on an investment of Rs 46000. That's cool 46% in less than a month's time. This extra 19000 could be used to pay off my electrici
Read more