Unlike many conventional investment options like FD, real estate or gold, where the returns on investment is same for all investors mutual funds have diverse range of investment as well as return options. While it is important to select a mutual fund based on risk factors and asset allocation, one should also invest based on the type of return options based on the investor expectations. Read on to know more about the type of option one can opt when investing through mutual funds or check here for more information about mutual fund app.
Under this option, if the company that investor has invested in pays out their annual dividend option, the capital gained in this dividend is further invested in mutual fund.
This type of investment is best suited for investors who are looking to invest their money long-term. While reinvesting their dividend, the NAV of their portfolio will increase giving better long term benefits for the investor.
Every time the company invested by the investor pay out the dividend the investor is directly will be given as payout for the investors. This type of investment is best suited for investors who want have short term investments, especially in debt.
Best suited for individuals who need steady cash-slow of their investment money.
Since the dividend is paid out at regular intervals to the investors, the overall long-term capital gain is lower compared to growth option.
But the important thing to keep in mind during this type of investment is that many times, the dividends are not guaranteed and sometimes the companies will not give out dividends throughout the year.
Dividend reinvestment option
in this option, the dividend given by the company is reinvested in the fund to buy more shares or units in the fund.
But the investor must be paying an entry load every time the dividend is reinvested. And in the case of lock-in, the new units will be under a 3 year lock especially in the case of ELSS funds.