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What will be the impact of Dividend Policy on the Net Asset Value - NAV

    IndianMoney.com Research Team | Tuesday, April 07,2009, 12:10 PM
 

The NAV of the growth selection is always higher than that of the dividend selection because money is going back into the scheme and not given back to investors.

How do these impact you?

It doesn’t add or drop per se by selecting any one scheme to you.Either you make the choice to get the money regularly (dividend) or at one snap shot (growth). If you choose the growth option, you can make money by selling the units at a high NAV at a later on.

If you choose the dividend option, you will get the money time and again as well as advantage of a higher NAV (though the NAV here is not as high as that of a growth option). Say there is a fund with an NAV of Rs 18. It declares a dividend of 20%. This means it will pay 20% of the face value.

The face value of a mutual fund unit is 10 (its NAV in this case is 18).Thus it will give you Rs 2 per unit. If you own 1,000 units of the fund, you will get Rs 2,000. The NAV will fall from Rs 18 to Rs 16 because it has paid Rs 2 per unit

If you invest in the growth choice, you can sell the units for Rs 18. If you invest in the dividend choice, you can sell the units for Rs 16, since you previously made a profit of Rs 2 per unit earlier.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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