Growth Fund and Dividend Liquid Fund
If you are a mutual fund investor then these are the two terms that you must be familiar with. Both these terms mark the mode of return that you can opt for. First of all growth fund is a return policy where the investor gets the return only when he/she sells the units. Whereas the dividend fund is a return policy where the investor receives a periodic return. These funds are also called as mutual liquid funds, since they are easily convertible to cash.
Now let us look into both of these funds in detail with an example.
In growth fund, suppose you brought 100 units mutual fund for Rs.10 each. After one year the price per unit rose to Rs.15. So if you are selling 100 units then you will get a return of Rs.500. This is how growth fund works. The basic features of growth fund are:
- Returns are obtained only on selling units
- No period bonus, gains or interests
- For long term mutual funds growth fund is suitable
Now let us move on to Dividend fund. Here you brought 100 units for Rs.10 each. After three months the price per unit rose to Rs.13.50. So you will receive Rs.300 (Rs.3×100 units) as dividend, whereas Rs.10.50 is reinvested on the mutual fund. The basic characteristics are:
- Return in the form of dividend is paid at a periodic interval
- Suitable for people looking for a consistent income
- Works best for short term investments
- However the dividend amount is inconsistent, which varies according to the price fluctuation.
