In the last video, we saw the different investment plans available for mutual funds. Now, we will look at what are the different investment options available in investing in mutual funds. In terms of investment options, while investing in mutual funds, we have primarily two options. One is the growth option and one is the dividend option. We will take a look at both of these options in more details. First we take a look at the growth of the growth option on mutual funds means that the investor will not receive any dividend that may be paid out by the stocks in the mutual fund.

We know that the stocks pay dividend generally annually and it may pay any number of interim dividends. So when the stocks in the mutual fund portfolio pays dividends, the AMC has options To pass on the dividend to the investors by selecting the growth option, the investor is giving the mutual fund house or AMC the right to reinvest the money he would otherwise pay out to the investor as dividend. This money increases the net asset value of the mutual fund. The fund managers may use the money received as dividend from those different stocks to buy more shares in the companies which are already there in the portfolio or they may use the money to buy new stocks for the portfolio. See the decision is taken by the mutual fund managers so that the money is utilized in a manner which increases the net value of the mutual fund and gives more returns to the investors.

So, the bottom line is that, in the growth option, the investor realizes higher capital gains on the future. fund using the same number of shares. Now mutual funds you normally say number of units. So using the same number of units the investor realizes higher capital gains. Now, let us take a look at the dividend auction. The dividend option the mutual fund houses or the ALCS pay out the dividends received from the stocks to the investors.

Different mutual funds pay dividends at different intervals. Some paid monthly some paid quarterly some paid annually. For example, HDFC balanced advantage funds pays dividend on a monthly basis. While access long term equity fund pays dividends on an annual basis. However, the dividend payment interval for every mutual fund is always defined. investors should note that when the meeting AMC pays dividends.

The net asset value or the nav of the mutual fund reduces by a proportion of the dividend that is paid out. Now in the dividend option, there are two sub options, one is dividend reinvestment option and one is dividend payout options. Let us take a look at each of them. We first discussed dividend payout option in dividend payout option, dividend distributions are made by the mutual funds are paid out directly to the investor. As we discussed earlier, every mutual fund has a defined periodicity actually the dividends are distributed. So, according to the PRC periodicity the dividend is credited to the the investors bank account now let's take a look at dividend reinvestment option.

In dividend reinvestment option, the dividend received By the investor from the AMC is reinvested in the same mutual fund by the AMC to purchase more units for the investor. When the dividend is declared in the mutual fund, the net asset value of the mutual fund gets adjusted. However, now the investor has more shares or units in the mutual fund due to the investment of the dividend which he has received from the AMC. So, we saw that in both growth option and dividend reinvestment option, the investor does not collect the dividend that the mutual fund declares from time to time. However, there is a major difference between these two. In the growth option, the number of units remains unchanged.

The dividend reinvestment option the number of units increases when they are To purchase from the dividend that is provided to the investor. Now, the question is Can one switch between growth option and dividend option and the vice versa. Switching from the growth option to dividend option or the vice versa has the same implication as sending holdings in one mutual fund and making a fresh purchase in other mutual fund. In India, selling mutual funds attracts capital gains tax. With that we come to the end of this section. See you in the next section.