Money in the bank account feels good, doesn't it? Even better if it is tax-free! That's one of the biggest reason why hundreds of thousands of investors in mutual funds invest in dividend schemes. We felt we really need to put a point across to investors who don't fully understand how dividend schemes work. A lot of the so-called benefits are nothing but tactics that appeal to emotions rather than any logic.
1. How do dividend schemes work?
For an investor, there are only two ways to get returns on investment. Either the value of the investment (NAV) grows, or the investments starts paying back money (Dividends).
In Dividend option, as the name suggests, dividends are paid out i.e., periodically a part of your investment is put back in your bank account. However, this results in a lower NAV
In Growth option, all dividends received from the investments are reinvested, which result in a higher NAV.
The bottom line is this....