What is the Difference Between Dividend Growth and Dividend Mutual Fund?

The main difference between dividend growth and dividend mutual funds lies in how the profits are distributed to investors and the investment objectives of each type. Here are the key differences:

1. Dividend Distribution: In a dividend growth fund, the focus is on capital appreciation by investing in equity and equity-related securities, while in a dividend mutual fund, the focus is on providing regular income to investors by distributing dividends from the underlying portfolio.
2. Growth Option vs. Dividend Option: The growth option of a mutual fund reinvests the profits made by the fund in its underlying assets, allowing investors to benefit from the power of compounding and helping to create wealth over time. In contrast, the dividend option pays out profits made by the mutual fund scheme to investors at certain intervals, such as annually, monthly, or quarterly.
3. Net Asset Value (NAV): The NAV of growth funds either remains the same or increases due to the reinvestment of profits, while the NAV of dividend funds decreases when dividend payments are made.
4. Investment Horizon: The total returns of the growth option are usually better than the dividend option over a longer investment horizon, as the compounding effect favors growth plans.
5. Taxation: Growth plans are taxed as capital gains when the funds are redeemed, while dividends from dividend plans are subject to dividend distribution tax.

In summary, if you need regular cash flows from your investment, you can invest in a dividend option. On the other hand, if you do not need regular cash flows and want to maximize your total returns, you should invest in a growth option.

Comparative Table: Dividend Growth vs Dividend Mutual Fund

Here is a table comparing the differences between Dividend Growth and Dividend Mutual Fund:

In the case of Dividend Growth, the excess return earned on the stock is re-invested in the stock itself, and the profits are materialized only when the shares are redeemed or sold. On the other hand, in a Dividend Mutual Fund, the excess profits are withdrawn only as dividends, and the net asset value (NAV) of the mutual fund units increases over time. The choice between the two options depends on the investor's financial objectives and tax situation.