Rahul decided to invest in a mutual fund to fund his planned foreign holiday trip. His broker asked him if would like to opt for dividend or growth plan. Rahul was confused. He didn’t know what to do. So if you are in this position, then read on to find out more about these options.

When you invest in a mutual fund, your money is invested by the fund in buying assets like stocks, debt or gold. In turn, you get units in the fund. When the value of the underlying asset goes up, the value of the unit (NAV or Net Asset Value) also goes up, thus helping you earn profit. You can opt to withdraw this profit or keep on holding on to it and 10 per unit, then the value of each unit will now become Rs 40, once the dividend has continue to earn more profit.

If you need cash, then opt for the dividend option. This will enable you to withdraw the appreciation in the value of your units. However remember, the value of the units will fall by the amount of dividend declared. E.g. if you the NAV of the fund is Rs 50 and the dividend declared is Rs been paid out.

On he other hand, if you are looking to build a corpus for a long-term goal like retirement or your child’s education, then growth option is right for you. Here you can benefit from the compounded growth, thus helping you achieve your goal.

As Rahul did not actually need money, but was building corpus for his foreign holiday, growth option was suitable for him. Always find out the reason for investing before actually investing in a fund.