From investment point of view, it becomes very imperative to understand the implication of which option you are choosing. Selecting the right option is as important as selecting the fund itself

The option you pick should depend on the

• Cash requirement & investment time horizon
• Tax efficiency

In case of Equity Funds

Equity funds are meant for long term investments. Those who want to create wealth or achieve long term financial goals should choose growth option. It will help you to stay invested rather than cashing out from your long term funds.

Exceptions to Growth option

In case of thematic or sector funds, it would be wise to choose dividend payout option as you will able to book profits when that particular theme or sector is in uptrend. Returns from these categories are highly volatile and it will be difficult to predict the time of exit from these funds

Those looking for regular income such as retirees, monthly dividend option in Hybrid funds like Balance funds, Equity Savings Fund or MIP will be a good option to select.

In case of Debt funds

Debt funds are meant for short term as well as for long term investments depending on the needs of the investors. Those looking for regular income should select dividend option.

Less than 3 years:

If you fall in the 10 percent or 20 percent tax bracket, it would be wise to opt for growth option.

For those in 30 percent tax bracket should select dividend option as DDT paid by the AMC in case of debt funds is around 28.32% in case of Individual/HUF/NRI.

Companies/corporates should select growth option as they fall in 30% tax bracket and DDT paid by the AMC is also 30%. So for them it will make no difference whether they choose dividend option or growth option.

More than 3 years:

For all investors including corporates, it would be wise to choose growth option as they can take the benefit of indexation which will provide them higher post tax return.

Happy Investing!!!