Growth plan in a mutual fund
Mutual funds are very versatile in nature. There are many choice to choose from. Some of different plans are
- Growth plan Option
- Dividend reinvestment Option
What is Growth plan in mutual funds ?
Growth plan are basically funds who does not payout the divided to their share holder. Hence they use that money instead of paying out to reinvest in their businesses and Hence there is an increase in net asset value of that same fund. Hence Shared holder gets the benefit that the same funds which they have brought has increase its value .So growth plan are not for the investor who seek divided from their funds. It is the way that investor increase its NAV of the mutual fund and capital gain is also observed
So you might have been asking yourself that is there any different plan. So the answer is yes that is Dividend reinvestment Option.
What is Dividend reinvestment Option in mutual funds ?
Dividend reinvestment is different from the option we saw earlier. In this plan we get the dividend so instead of reinvesting that money in their business it is given to the shared holder. You will not get money out of it but instead you will be capable of buying more funds. The administration is paid automatically and Hence you can buy more funds . And if you want money on monthly basis then you can also choose SIP mutual funds and there is also different plan which is discuss below
So the investor who was earlier getting the benefits of increase in its NAV of mutual funds .will not be getting here but instead he/she will have more number of mutual funds than before.
Selection of Dividend Distribution Option
Most of the cases what happen is it is up to the shareholder whether they want to reinvest the dividend OR want money out of it. They there is an exception that if you have an individual retirement accounts (IRAs). Dividend in IRA account must be reinvested for those have not yet reached to retirement age. So that they would not get penalties for early withdrawal from the Internal revenue service (IRS).
You might be thinking how you will get paid for the dividend
How will you get paid (Dividend paid out)
In case of paid out if you choose cash instead of buy more share the tax benefits/implementation will be the same for both the cases. And If you select the cash option then it will be transferred to your bank account electronically or by check payment.
And if you’re using 3rd party apps or services like paypal or paytm you can setup with your account there are plenty of services who can help you with this.
As there are many mutual funds to choose from .And plus you have also an option to select from cash or buy more funds. Hence whenever you have choose any funds choose it wisely.
FAQ session regarding the topic
what is payout ? :-
Payout refers to expected financial return from investment.
what is Divident ?:-
a sum of amount which is paid on monthly basis by the company whose stocks or funds you have purchased .
what is individual retirement accounts ?
It is a type of account design in such a way it will help you in your retirement and offer many tax benefits .And its type are Traditional and Roth.
What is Internal Revenue Service ?
The Internal Revenue Service (IRS) is the revenue service of the United States federal government. The government agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue, who is appointed to a five-year term by the President of the United State