Growth or Dividend
- Thread starter gabbar.singh
- Start date
There are advantages with both growth and dividend. It depends on your outlook and how you want your investments to work for you,.
If you are an investor who does not require cash returns from his investments periodically, and can wait say 5 years or more for his investments to "grow" then growth is the option you want. Because the returns you would have normally got in dividend option would be in the market making more money for you.
If you are an investor who does not require cash returns from his investments periodically, and can wait say 5 years or more for his investments to "grow" then growth is the option you want. Because the returns you would have normally got in dividend option would be in the market making more money for you.
I started as long term investor, and bought all the sales stories that Mutual Fund uses it.
After seeing 2 major bull and bear run, my views have changed..
1) There is nothing called "Long term investing". It is very loosely defined. Lets accept the fact, in long term we all are dead. So always there is fixed term. It could be 1yr, 5 yrs, 10yrs, 25yr.. but still there is definite term. Depending on our timeframe, the approach should change. If we are 5yr investor, then we got to know when is the time to book profit, how economy and mkt behaves in 5yr period, etc Otherwise, we just see paper profit and keep waiting for this to disappear in next bear wave.
Profit is only when it is in Bank else it is not a profit. So we got to have idea about profit taking as per our market behaviour in our timeframe.
Check out the behaviour of Japan mkt which has seen great time.. but now it is at a level which was 25yrs back. We also might see a great bull run till 2025.. but that will certainly end and nobody knows where will it land.
2) Growth or dividend option - If profit is left with Fund managers, then this profit will disappear in next fall. It will crash lot more because Fund managers can book profit and hold cash above 10% of their profit. Their hands are tied.. So they have no other option but to live with it and keep watching their fund loose everyday with the market.
So better to take your profit out.. and use the money wisely to enjoy the life (somehow our current Indian upbringing does not teach us about how to have fun.. It is good in teaching us how to slog and keep planing for future at the cost of present)
So, my preference is Take dividend out.
3) Div reinvestment - In my view, this is worse then opting of growth option. Cause u get the dividend, on the same day, fund will buy new units from u and collect entry fee. So by reinvesting mode, you
are feeding the fund manager by paying the entry load. And this investment is not goign to buy you any new portfolio or will change your risk. In case of growth option, you will still hold the same investment but will not pay the entry fee.
4) If one is smart, then better to take dividend out and take independent decision about where to park this money as if it is extra cash that u have in yr pocket. Depending on your current portfolio and risk profile, probably it might go toward fixed term investment, gold, real estate, or to your Family members.
Happy Investing.
After seeing 2 major bull and bear run, my views have changed..
1) There is nothing called "Long term investing". It is very loosely defined. Lets accept the fact, in long term we all are dead. So always there is fixed term. It could be 1yr, 5 yrs, 10yrs, 25yr.. but still there is definite term. Depending on our timeframe, the approach should change. If we are 5yr investor, then we got to know when is the time to book profit, how economy and mkt behaves in 5yr period, etc Otherwise, we just see paper profit and keep waiting for this to disappear in next bear wave.
Profit is only when it is in Bank else it is not a profit. So we got to have idea about profit taking as per our market behaviour in our timeframe.
Check out the behaviour of Japan mkt which has seen great time.. but now it is at a level which was 25yrs back. We also might see a great bull run till 2025.. but that will certainly end and nobody knows where will it land.
2) Growth or dividend option - If profit is left with Fund managers, then this profit will disappear in next fall. It will crash lot more because Fund managers can book profit and hold cash above 10% of their profit. Their hands are tied.. So they have no other option but to live with it and keep watching their fund loose everyday with the market.
So better to take your profit out.. and use the money wisely to enjoy the life (somehow our current Indian upbringing does not teach us about how to have fun.. It is good in teaching us how to slog and keep planing for future at the cost of present)
So, my preference is Take dividend out.
3) Div reinvestment - In my view, this is worse then opting of growth option. Cause u get the dividend, on the same day, fund will buy new units from u and collect entry fee. So by reinvesting mode, you
are feeding the fund manager by paying the entry load. And this investment is not goign to buy you any new portfolio or will change your risk. In case of growth option, you will still hold the same investment but will not pay the entry fee.
4) If one is smart, then better to take dividend out and take independent decision about where to park this money as if it is extra cash that u have in yr pocket. Depending on your current portfolio and risk profile, probably it might go toward fixed term investment, gold, real estate, or to your Family members.
Happy Investing.
I agree.
There is no actual difference between dividend reinvesting and growth option except in the number of units held. The actual market value of the investment remains the same - the NAV value of the dividend option will be lower because of the actual dividend declared.
But there are two BIG advantages of Growth options.
1. For ELSS schemes, its absolutely mental to go the reinvestment option. Any dividend reinvested is also subjected to a further 3 year lock in period. In growth option you can cash out everything in 3 years time.
2. I will explain this with a rough example.
Consider you invest 100,000 (10000 units @ 10) on Jan 15 2009 on a normal equity fund.
June 15 2009, Nav is 11.5, dividend is declared and reinvested, 15000 rupees
You will now have 11500 units and NAV drops back to 10
Jan 20 2010 - You want to exit the fund - Value of NAV is 12
What happens? No capital gain on 10000 units. its been held for over a year and you pocket 120,000 tax free.
Short Term Capital Gain will apply to the current value of the 1500 units.
If you had invested in the growth option
On Jan 15 2009, You would have got 10,000 units @ 10
On Jan 20,2010 You would have sold 10,000 units @ 13.5 and taken home 135,000 tax free.
There is no actual difference between dividend reinvesting and growth option except in the number of units held. The actual market value of the investment remains the same - the NAV value of the dividend option will be lower because of the actual dividend declared.
But there are two BIG advantages of Growth options.
1. For ELSS schemes, its absolutely mental to go the reinvestment option. Any dividend reinvested is also subjected to a further 3 year lock in period. In growth option you can cash out everything in 3 years time.
2. I will explain this with a rough example.
Consider you invest 100,000 (10000 units @ 10) on Jan 15 2009 on a normal equity fund.
June 15 2009, Nav is 11.5, dividend is declared and reinvested, 15000 rupees
You will now have 11500 units and NAV drops back to 10
Jan 20 2010 - You want to exit the fund - Value of NAV is 12
What happens? No capital gain on 10000 units. its been held for over a year and you pocket 120,000 tax free.
Short Term Capital Gain will apply to the current value of the 1500 units.
If you had invested in the growth option
On Jan 15 2009, You would have got 10,000 units @ 10
On Jan 20,2010 You would have sold 10,000 units @ 13.5 and taken home 135,000 tax free.
Well said AW10!!
Every trader/investor has to know when to exit if their sole purpose is to ride the economic uptrend, thats what Long term Investing actually means. Whether it is equity, property or any other investments. Infact following monthly/quarter charts and riding the trend untill the first breakout of HL could actually signal that the trend is pretty much collapsed. It sounds easy as very few of us are able to instill the required discipline in doing it practically.
Every trader/investor has to know when to exit if their sole purpose is to ride the economic uptrend, thats what Long term Investing actually means. Whether it is equity, property or any other investments. Infact following monthly/quarter charts and riding the trend untill the first breakout of HL could actually signal that the trend is pretty much collapsed. It sounds easy as very few of us are able to instill the required discipline in doing it practically.
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