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Growth versus Dividend option for Senior Citizen Investor

I am senior citizen.With falling rate of FD rates,Post Offices saving rates, I am planning to invest in diversified large cap equity schemes with Dividend payout option.What would bo better option? GROWTH option or Dividend pay out .With.growth option,in a year I can redeem growth accumulated.Please suggest better option.How many schemes I should invest? I want to invest 3 lakhs, so that I could get around 27000/- as dividend or growth in a year tax free.

Oct 17, 2015 by PRAKASH THETE, MUMBAI  |   Mutual Fund

You should understand that diversified equity growth funds are subject to market risks. You are expecting a return of Rs 27,000 per annum from your investment of Rs 3 lacs or in percentage terms, you are expecting a return of 9%. Over the long time horizon (at least 3 years or more) good diversified equity funds can give much higher returns. But there is no assurance that you will start getting this return from next year onwards. However, if you remain invested for the long term, there is a good probability that on an average you can much more returns that what you are expecting.

Your cash flow needs should inform your decision to opt for growth or dividend option. If you need the cash-flow every year then you should opt for the dividend option. The only difference between growth and dividend option is that, whereas the profits in growth option remain invested and accumulates over a period of time, the profits in the dividend option are paid to the investor. So if you wish to redeem the profit amount every year, it will be more convenient for you to opt for the dividend option. Growth and dividend option of diversified equity funds have the same tax treatment. Capital gains from equity funds after 1 year from the date of investment is tax free. Dividends from equity funds are also tax free.

Since you plan to invest Rs 3 lacs, you should select 2 – 3 good schemes at most and invest in them. You should monitor the performance of these schemes every year or every two years and see if they are meeting your expectations and how are they doing versus other schemes in the market.

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