Any net asset value per unit. On the other hand, the option accumulates the profits and then pays them out to you after a few months on an assigned date.scheme offers investors two choices, to invest in the growth option or the option. The growth option adds back any profits made from selling securities in the portfolio to your unit value or
In both cases you will make the same return, however, in case of aoption you have the profits in your hand and in the growth option they get added back and reinvested.
This distinction may not seem material enough at first glance, but dig a little deeper and you will see there are two clear reasons to avoid taking theoption.
Debt funds carry a 25%and in Budget 2018, a 10% was introduced for equity mutual schemes. This tax is not seen by the investor; however, the manager must deduct this amount of tax before distributing the surplus to investors as .
The tax rate carries 12% surcharge and 4% cess, making it an even higher deduction. Hence, even thoughis not taxable once you receive it, some tax has already been deducted before disbursal.
For those who were choosing theoption in debt funds and are subject to the 10% or 20% income tax rate, it is now more suitable for them to pick the growth option and pay short term tax if they redeem before three years or long-term tax with on redeeming after three years.
investors ideally, should not redeem before at least 3-5 years; long term tax for is at 10% too, making the net returns from and growth options similar.
2.taken now, is wasting your future profit
For remain invested for longer periods. Hence, by picking the option you are eating into the profits which could otherwise have been reinvested for future growth.investors, as mentioned above, the first rule is to
Moreover, unlike dividends paid by corporates as a means of sharing profits otherwise inaccessible to investors, mutual fund dividend is not an additional income. It is drawn from gains accrued on your existing units and paid to you sort of in advance.
As a result, after theis paid the price of your units will fall by a proportionate amount. This in your hands is likely to get spent, never giving you the chance to realise the long-term potential growth from an equity investment.
Ininvesting, option is simply not an efficient way to build your corpus. Stick to growth options across schemes and realise better growth.