Should I shift to direct, growth from dividend reinvestment option?

I have a mutual fund portfolio, majorly consisting funds with dividend reinvestment option. I am told these days that it is not a good option. People are advising me to switch it to direct growth option. Please guide If I switch it to direct growth funds now, will I lose money? Also, is it advisable to shift to gilt funds until the market is less volatile?

- Tushar Dhingra

It seems you are new to mutual funds and do not know much about mutual funds. To begin with, stop taking advice from random people. Since you do not know much about mutual funds or investing, seek the help of a mutual fund advisor. You need personalised advice. Your friends or colleagues, even when they have your best interest in mind, will not be able to offer you personalised advice because they do not know everything about you, especially your personal finances. A mutual fund advisor would seek all your details and offer you personalised advice. Gain enough experience and knowledge before taking charge of your investments.

Dividend reinvestment option, as the name suggests, invest the declared dividends back into the scheme. This results in owning more units. However, the net effect is the same as the growth option. In the growth options, the profits are invested back. Finally, when you sell your investments, the value of your investments would be almost the same under both the dividend reinvestment option and growth option.


You should choose your mutual funds based on your goal, investment horizon, and risk profile. It is not a great idea to base your investments on the prevailing conditions in the market. It will force you to jump from one hot asset class to the other. Also, chasing returns would often result in losing returns as you would lose the opportunity to make the most out each asset class.

Finally, as said in the beginning, seek the help of a mutual fund advisor before proceeding further.