Gold ETFs are traded on the secondary market and investors can buy and sell ETF units on the secondary market at any time.
I invest in a systematic investment plan and go for a dividend payment. Is it better to choose growth?
— Akash Batra
Dividend options are used by investors seeking regular income from their investments. However, dividend is not guaranteed. Mutual funds pay dividends from any investable surplus, which is essentially a return on your invested capital. This return of capital defeats the purpose of investing, which is to grow your investment corpus. Also, dividends are currently taxable in the hands of investors at their marginal tax rate. As a result, investors would miss out on the favorable tax treatment of long-term capital gains offered by mutual funds. Therefore, the growth option is better than the dividend payout option.
What is the difference between Sovereign Gold Bonds and Gold Exchange Traded Funds (ETFs)?
— Dhiraj Sharma
No, gold ETFs are not subject to a lock-in. Gold ETFs are traded on the secondary market and investors can buy and sell ETF units on the secondary market at any time, subject to available liquidity. Only SGBs have a lock-in of 5 years (total term of 8 years) from the date of issue. Issued by the RBI, they are government securities denominated in grams of gold. SGBs offer an interest of 2.5% per annum (paid semi-annually) in addition to the potential to benefit from price increases. Capital gains on redemption are also exempt from tax for private individuals. SGBs are listed and can be traded between market participants.
I want to build a corpus for my child’s higher education. How should I invest in mutual funds?
— S Radhakrishnan
Funds categorized as ‘Child’s Funds’ are subject to a lock-in of five years or until the child has reached the age of 18 (age of majority), whichever is sooner. Children’s funds invest in a mix of equity and debt instruments for the purpose of generating wealth or income.
Given the lock-in period with the aim of encouraging investors to stay invested, these funds do not offer investors any advantage over other categories. Therefore, it is advisable to consider other pure-play equity and debt funds to have better control over the desired asset allocation and to select funds with a long-term track record.
The writer is Director, Investment Advisory, Morningstar Investment Adviser (India). Send your inquiries to firstname.lastname@example.org.
This post Your Money: Growth Option Better Than Dividend Payout Option in Mutual Funds
was original published at “https://www.financialexpress.com/money/your-money-growth-option-better-than-dividend-payout-option-in-mutual-funds/2462048/”