Investment Valuation in India

Growth vs Dividend Option in a Mutual Fund When we select the fund for investing, often, the funds offer you the option of Growth Plan or the Dividend Option. It is important to understand the difference between the two and to select the option best suiting the needs and taxability aspects for an individual. Regular Income: The dividend option helps you get regular income (for example, for senior citizens). The growth option does not help you get regular income. Building Wealth: Since the dividend option gets you money at regular intervals, you cannot get the benefit of compounding. It is not suitable for building wealth. The growth option, instead, helps you build wealth over time and income gets compounded. Growth option is suitable for people wanting to save for future (example, child’s marriage, higher education etc) Tax Treatment: While dividends from equity oriented funds are tax free, if the fund is a non-equity fund, there is a Dividend Distribution Tax (...

Mutual Fund investment is common and is often advised as one of the safest options for investments by individuals. But these individuals are loaded with questions given the large number of funds available. We try and answer some of the questions that investors have. Should one invest in an Actively Managed fund or a Passively managed Fund Actively managed funds are more popular among investors, but carry a higher risk than passive index funds. Fund managers often use a benchmark (say Nifty, BSE 200 and so on) to measure their performance. A fund manager trying to beat the benchmark is forced to take positions that would give his fund an edge over the benchmarked index. It is not uncommon that in most cases, they fail to beat the benchmark and the fund - consequently the investors - suffer. So picking the right fund becomes an important decision for the investor. “Past performance is not an indicator for future performance”. So even if you buy consistent outperforming funds, the...