Growth Option

Products: Profits are not paid but are invested.

How does the NAV change?

A: Profits reinvestment in-turn increases the NAV which results in capital appreciation.

Effects of compounding:

Reinvestment of profits has a compounding effect.

for ex: –

Ax is longterm equity Fund. -> Growth NAV:-

43.11

Taxation

Equity:

Redemption within 1 year is at 15%.

After 1 year – gains above 1 lac – at 10% (in a  Financial Year)

Debt :

Redemption within 3 years – as per tax slab.

After 3 years -at 20% after Indexation.

Dividend Option

Products: A part of profits is paid out.

How does the NAV change?

A: NAV decreases by the amount of profit paid out. New investment accepted at ex- NAV rate.

Effects of compounding:

Since a part of profits is paid out, compounding is not at its full potential.

for ex: –

Dividend NAV :

22.49 -> 10% =Rs 2.2

Taxation

Same as growth.

Equity :

Dividends taxed at 10%.

Debt:

Dividends taxed at 28.84%.