What is the difference between Growth, Dividend, and Bonus option in Mutual Funds?
Those are their general strategies in each plan. There’s really no standards as to how they can name their plans or describe their strategies but in general, growth means that they invest in stocks in companies such as Apple and Google where the companies are managed for growth in that profits are reinvested in the companies and they have been able to maintain a record of growth. Dividend means their strategy is to invest in companies that are mature, have solid markets that may no longer to growing but are profitable and they distribute that profit to shareholders as dividends. It’s also common for funds to be called growth and income meaning that they have a blend of the two strategies. The words Option and Bonus aren’t commonly used to describe mutual funds in North America, perhaps options refers to the use of various option strategies. Haven’t a clue what bonus might mean except as pure marketing. In truth, mutual funds tend not to reveal the exact details of how they invest and o
Most mutual fund schemes come in three options – dividend, dividend reinvestment and growth. The fact that under the dividend option the fund keeps on declaring regular dividends and no such payments accrue under the growth option might suggest to some investors that the former are more yielding. However, the truth is that it does not make a dime of difference which option you choose, from the pure investment-yield point of view. The form in which you choose to receive the gains might have tax implications though. When your fund pays out a dividend all it has done is – paid out the gains it has generated instead of accumulating it. So now the onus of investing this money falls back on you. Moreover, any dividend paid means that the fund pool is smaller by the amount of the payout and this is reflected in the lower NAV. Had the fund not paid the dividend, it would have been reflected in the higher NAV of the fund and as a result the value of the units held by you would have appreciated
