Dividend Reinvest Option

Within a Mutual Fund scheme, there are three options to grow your money, namely growth, dividend reinvest and dividend payout. In case of Dividend Reinvestment option, you can reinvest the dividend made by the scheme during the intermediate period back into the scheme. A Mutual Fund scheme invests in a basket of securities like stocks, bonds, gold and even international securities. Some of these securities pay dividends while others may pay interest, while some others may pay bonus. The profits made by the scheme in the form of dividends, interests, gains or bonus can be distributed among the scheme’s investors at the discretion of the fund managers. Fund managers decide when to distribute profits from the scheme among investors.

If a fund manager does decide to distribute the profits, the declared profits in the form of dividends are not paid to investors when they opt for dividend reinvest option but are rather reinvested in buying more units of the fund. Unlike a growth option where the value or NAV of your holding grows, here the number of units held by you grows since the dividend amount is used to buy more units of the scheme.