How to select the right mutual fund plans, options

While there are different types of schemes such as equity, debt, hybrid and liquid depending on the type of instruments the schemes invest in, mutual funds also offer different plans/options within the same scheme. At the time of investing the investor needs to specify the plan and option that he/she wants to opt for.

Direct vs regular plan
In the direct plan there is no intermediary. An investor who has the skillsets to plan his finances can opt for the direct plan. It has a lower expense ratio and hence one gets more value on investment. Distribution fees or commissions paid to distributors are factored in regular plans. Investors who act through financial advisers often choose the regular plan.


Growth vs dividend
In growth option, the capital appreciation is accumulated in the NAV of the scheme. In a dividend option, appreciation is periodically distributed to investors as dividend. An investor who wants regular income from investments can go for dividend option. Investors looking at a corpus at the end of a certain period can choose the growth option as this enables compounding to work.

Dividend payout vs reinvestment
With dividend payout, the dividend declared is paid into the investor’s bank account. In the reinvestment option, the dividend is declared but the amount is reinvested into the scheme as additional units. Dividend reinvestment option is chosen by investors who fi nd growth option lesser tax efficient and vice versa.

Point to note

• Though the NAV of the different options/plans may be different, they form part of a single scheme portfolio.
• Tax treatment under growth option and dividend option or dividend payout and dividend reinvestment option is different in the hands of the investor.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.