Bonus units that a fund issue is deemed to have been acquired at zero cost. Thus, whenever they are sold, the entire sale price is treated as capital gains. However, at the time of issue of bonus, the NAV of the fund drops in a proportion that is identical to the ratio at which bonus funds are issued.

What is dividend option in mutual fund?

What is the dividend option in mutual funds? A dividend plan in a mutual fund is one in which the profits from investments are distributed to investors in the form of dividends. Dividends may be paid monthly, quarterly, half-yearly or annually.

Does mutual funds give bonus?

Mutual fund schemes that declare bonuses are a big draw, as these schemes allow investors to employ what is known in industry parlance as “bonus stripping” to book a short-term capital loss and set it off against long-term capital gains. At the time of bonus, the investor will get 20 lakh units of Rs 10.5 each.

Which is the bonus option of a mutual fund?

Below is example explaining Growth, Dividend and Bonus Option. At end of 1 Year the the above investment would grow to Rs 10,90,000 but this would be paid in different ways depending on the option chosen. For Growth option the NAV would increase by 9%, so the new NAV would be Rs 21.8 and your number of units remain at 50,000.

How does growth option work in mutual fund?

Under the growth option, all profits made by the fund are invested back into the scheme. And so, an investor does not receive any intermediate payments in the form of bonus and dividends. An investor gets returns only on selling the units, which is determined by the net asset value (NAV) of the scheme.

When to pick dividend option in mutual fund?

Dividend Option in Mutual Fund An investment should pick the dividend option when the investment is intended to provide a regular source of income. In this option, whenever the NAV of the fund reaches a certain level, the fund distributes the profit to its investors as dividend.

How are dividends reinvested in a mutual fund?

Whereas, the dividend reinvestment plan reinvests the dividend in the same fund that has declared the dividend and the dividend sweep plan invests the dividend in units of another mutual fund of the same fund house. Are Mutual Fund Dividends Same As Stock Dividends?