Conceptual question on growth and dividend


I'm very new to the investment world, so I'm apologising in the beginning if the question is too obvious.

I recently started to invest in mutual funds, and came across the terms of Growth and Dividend. Based on initial not-so-deep google searches, I visualised these as similar to simple and compound interest, the same option we get while creating fixed deposit in banks. But I came across the term "Dividend Payout" and "Dividend Reinvestment" in the first account statement I received, and it contrasts with my assumed notions as I can not visualise difference between Growth and Reinvestment.

I want to understand the difference, and hence let me set up a context.

1. Suppose I buy 500 units from a mutual fund at ₹20/- NAV in beginning of a financial year i.e. I invested total ₹10,000/-.
2. Consider the scenario that at the end of the financial year, NAV stands at ₹25/-, resulting total worth of my shares at ₹12,500/-.

I assumed the following for the two options:

1. In Growth, there will be no effect whatsoever and the same 500 units will continue to next financial year, where their worth may increase, decrease or remain as it is. There will be no tax applicable, until I choose to sell some units that I own at which point it'll be considered as capital gain.
2. In Dividend, ₹2,500/- will be paid out to my bank account. So, my total number of units after that will become 400, but investment worth will remain same as ₹10,000/-, as it was in the beginning. And I have to pay tax on the dividend of ₹2,500/- in the rate of my tax slab based on my salary.

After getting to know about Payout and Reinvestment, it feels that Payout will be what I described above in point 2. Reinvestment may be that I'll get 100 more units, but will get nothing as cash. I'm not sure at all whether that's the case or not, and no idea how "tax" will be calculated on that ₹2,500/-.

Please let me know whether my ideas are correct or not. I know for sure that it's wrong for Reinvestment, so please help me correcting my understanding. If there are some other options/conditions which I don't know about, I'll be grateful if you can point those out as well and how they will impact this hypothetical scenario.

P.S. My question is mainly for the understanding of different options as of now. Obviously I' interested to know what should work best for me, but first I want to understand what each options are, their pros and cons and etc.
Can I please get some replies? I see everywhere on the internet that Growth is preferable and Dividend should not be used, but I can't find what exactly happens in Dividend that makes people away from it. Some answers to clarify this will be so helpful.
I will draw an example of a company, I guess that it should be the same as fund. Imagine that there is a company which is listed on the stock market. The company has profits and its head is to decide what to do with these profits. We will omit such things as depreciacion costs, taxes and so on. Imagine that they have 10% of profits to spend in the most appropriate way. The first option is to give these profits to the investors in the form of dividends. More investors will be attracted by it, so, the stock proces will grow. The second option is to spend the profits directly on the growth of the price by doing buyback or something like this. The prices will grow, the investors will be happy and the company may attract attention of more investors. The question for the investor is whether he wants the money from his investment immediately or he is ready to wait to sell the stock in the future. More and more companies nowadays prefer invest their profits in growth of the company and stock prices, but it is up to you to decide which option is more appropriate for your needs.

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