Mutual Fund Options - Dividend Reinvest

If you opt for Dividend Reinvest, whenever the fund announces dividend it will not be paid to your account but you will get additional units for the dividend amount. If you don’t need intermediate payments you can go for this option. If dividend distribution tax is not there it’s better when compared to growth option.  

NAV is separately calculated for dividend options (Dividend payout and Dividend reinvest) and growth options.

Let’s say, Fund A with unit face value Rs 10 and NAV Rs 80 announces a dividend of 60% on face value and you hold 1000 units of this fund.

Your investment value before dividend announcement = Rs 80 * 1000 = Rs 80,000

If there is no dividend distribution tax (At present in India it’s not there) the number of additional units you will get = (10 * 0.6) * 1000 / 74 = 81.08 Units

Number of units after the dividend = 1000 + 81.08 = 1081.08

Value of your investment after the dividend = 1081.08 * Rs 74 = Rs 80,000

If dividend distribution tax is applicable the dividend would be less and so number of additional units would also be less. The difference between Dividend reinvest option and dividend payout option is that your dividend amount is reinvested at the prevailing NAV in first case whereas in second case you will get the dividend amount in cash. NAV is same for both the options but number of units varies.

Note: Calculations are given only for understanding the options. They may not match exactly with the fund house calculations.

Related posts

November 29, 2009 | Filed Under Mutual Funds 

Comments

Leave a Reply





Add to Technorati Favorites