In many comments by many readers I get this question quite often. Finally instead of replying them individually I have decided to give a very detailed picture with lots of calculation for what is right for you? Growth or Dividend.
Comment by Ashok on 20 April 2010:
Also, cud u suggest which option to go for whether for Growth/Dividend?
Comment by Girdhar on 21 April 2010:
Shabbir, like Ashok, I also have a doubt on whether to go with Growth/Dividend mode? As u said, dividend mode will be good if we are investing for tax saving. can u eloborate more on this? why dividend mode will be better than growth for tax saving?
So now let us do some analysis and see which one is better. Many people misjudge my suggestion that I prefer Dividend and that is absolutely not true.
Let us say that in July 2002 when Sundaram BNP Paribas Select Midcap Fund was launched you invested 10,000 Rs in each of Sundaram BNP Paribas Select Midcap – Growth and Dividend scheme and you received 982 units for both the schemes. Let us un-complicate and make 982 as 1000 units of each.
So as of today the NAV of Growth and Dividend scheme is 137.5427 & 17.1870 respectively.
Now let us pull the dividend history of the fund.
|Date||Dividend (Amt per unit)|
So if you apply the calculation for 1000 units you pocketed 32,000 Rs in 8 years for your investment of 10,000 and as of today your growth and dividend schemes are at 1,37,542.7 and 49,187 Rs respectively.
This does conclude that growth option gives better returns over an elongated period of time. Don’t select the dividend option assuming that it will offer better returns. Instead, the investor’s need and objective should play a role in deciding which option he chooses. Ideally investors who are looking for regular income should consider dividend option else you should always prefer growth option.
Why I prefer Dividend Option for Tax Saving?
My objective is to save tax and not investment. My need and objective drives me to dividend option. When I opt for tax saving I do not have surplus money generally and if I can invest less and get full tax savings I prefer that. When I am into investment frame of mind I generally have the excess money to keep it working for me for years and that is when I opt for growth.
Is Dividend Option that bad?
Many of us think that statistics is everything but that is actually not true. I remember a famous quote about statistics by Aaron Levenstein. Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.
So now let us look at the second view point of the above numbers to reveal the vital parts.
On an average you get 4,000 Rs per annum for an investment of 10,000. So now let us make the investment as 1 million i.e. 10 lakh.
You get a whooping 400k Rs per annum for doing nothing. More than an average few years of experienced Computer Science graduate gets.
Your Investment objective should play a role in deciding which option you choose.
Over to you
What is your investment Objective? Share in comments.