There are several types of mutual fund schemes. Investors look for better plans for these. So through this article we are going to give you information about Growth Mutual Fund and Dividend Fund, so that you can choose the best for both of you.
Growth mutual fund
The mutual fund scheme, which invests in growth stocks to achieve maximum returns through capital appreciation is known as growth mutual fund. Fund managers in such mutual funds find and monitor companies with a good track record and invest in small enterprises with high revenue growth or growth potential. There is a greater risk of investing in such a fund. Since the primary goal of these funds is capital appreciation, they do not invest much in dividend paying companies. A growth fund is able to provide high returns to investors while the market performs positively. The portfolio of such mutual funds is made up of large-cap, mid-cap and small-cap companies. They offer fast returns and provide high returns to the investor. Dividends in such funds are either paid little or no at all. Investments made in this type of fund can affect the investor badly when the market falls. At the same time, it also provides more returns when the market increases.
Dividend mutual fund
In case of dividend (dividend) mutual fund, the fund house invests in the shares of profit-making companies. In this, dividends are paid to the investors. Profit is distributed among investors by paying dividends on a quarterly or annual basis. However, such funds are not guaranteed to pay dividends. Typically the fund manager declares a dividend payment upon generating profit. Dividend mutual funds can be classified into two classifications based on asset distribution. First, dividend yielding mutual funds (equity) and second, dividend yielding mutual funds (debt).
Which one is the best?
The basic differences of these two are being explained below, which will make it easier for you to choose one for yourself –
Growth funds invest in high yielding shares of revenue generating companies, so they promise high returns. However, no regular payment is made to the investor in a growth fund. At the same time, dividend fund pays dividends in addition to profit and you keep earning. In this way, there is a high risk of investing in a growth fund and you can also lose your entire investment during the poor performance of the market. However, if you invest for a long period, there is a potential for much higher returns than dividend paying mutual fund schemes.
This is one factor that investors should first look for when choosing one of growth and dividend mutual funds. Investing in growth funds is very volatile, as there is a sudden rise or fall in share prices. These funds are suitable for investors with high risk carrying capacity. In case of dividend payment, the mutual fund tries to pay the dividend on a regular basis and keep up with the mandate, but the payment is not guaranteed. Also, the amount of dividend paid to investors is not fixed.
While investing in growth mutual fund schemes, the investor has to pay a higher fund management fee. The AMC uses a portion of your profit to pay the fees each year. When investing in mutual funds through the fund house, you will have to pay the fund manager fee. In case of debt funds, fund management fees will have to be paid with higher DDT. However, if you have invested mostly in equity mutual funds, you will not have to pay DDT. Thus, a dividend equity fund can be a better option for investors seeking a moderate return on moderate risk investment.
Growth mutual funds reinvest profits. Growth mutual funds are likely to increase or remain the NAV. But in case of dividend mutual funds, the NAV of the fund is depreciated as soon as the dividend payment is announced. Also, high dividend payout is also not a good sign, as it indicates that there are very few opportunities for the company to grow.
Based on the above valuation, you can choose between growth mutual funds and dividend funds. Growth mutual funds are a better option for investors who want to increase their money. The dividend option is the best for investors who want regular income. The growth option is good for long-term investment. It increases your money and helps to build funds. If you have a regular income and do not need a side income, then the growth option would be best for you.