Mutual Fund Investment: How to select the right mutual fund plan

In the direct plan, there is no intermediary. An investor who has the skillsets to plan his finances can opt for the direct plan. It has a lower expense ratio and hence one gets more investment value. Distribution fees or commissions paid to distributors are factored into regular plans. Investors who act through financial advisers often choose the regular plan.

In the growth option, the capital appreciation is accumulated in the NAV of the scheme. In a dividend option, appreciation is periodically distributed to investors as dividends. An investor who wants regular income from investments can go for the dividend option. Investors looking at a corpus at the end of a certain period can choose the growth option as this enables compounding to work.

With dividend payout, the dividend declared is paid into the investor’s bank account. In the reinvestment option, the dividend is declared but the amount is reinvested into the scheme as additional units. The dividend reinvestment option is chosen by investors who find growth options lesser tax-efficient and vice versa.

Though the NAV of the different options/plans may be different, they form part of a single scheme portfolio.
Tax treatment under growth option and dividend option or dividend payout and dividend reinvestment option are different in the hands of the investor.

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