What is the difference between mutual fund growth and dividend plan options

There is no difference in performance of the funds as far as growth and dividend options are concerned. It is just the mode of profit distribution – In growth option the fund returns remain invested in the fund itself and compounds till such time you withdraw it. In the dividend option the profits are distributed by way of paying dividends to investors. However, even if you opt for dividend plan, the fund manager may or may not declare dividends even if the fund makes profit.

Please also note that in a fund there are many options to choose for – Growth, Dividend and Dividend reinvestment. Some Funds have Bonus option too and few even have capital appreciation transfer option. Irrespective of the option your are choosing, the fund manager invests the entire money in the same portfolio and therefore the returns are same.

Choosing an option is purely based on your requirement. For example – in case you are investing for achieving a long term goal, you should go for Growth option. But, in case you are investing to get periodic returns from your fund then you may choose dividend payout option. Therefore, it all depends on why you are investing, what is the goal, your time horizon and liquidity requirements over a period of time.

Sometime back, we did one article on this topic, which you might like to read – Mutual Fund Growth of Dividend Option: What should you choose