Most investors tend to get confused while choosing dividend or growth option when applying for a mutual fund. The real choice should not be so difficult to make.

Ask yourself a simple question, do you need the recurring income for yourself or the income so received in the form of dividend has to be reinvested again. If you have some other regular source of income then by choosing dividend option you are again creating a fund, which would be small in size unless augmented by other income, and won’t be of size that could be invested again in good channel of investment.

In such cases, it would obviously be better if the same money continues to get invested in same scheme and thus letting you earn compounded returns.

However, before making the choice consider other factors too. First one is, is the fund you are applying new fund offer (NFO)? NFOs have no track record and choosing cumulative option would make your earnings grow at a lower rate only if the NFO does not perform well. In case of NFOs with no track record of fund managers, it may be wise to choose dividend option only.

Second; is the quantum of funds sought to be invested sizeable? If so, the dividend amount would too be good one and thus can be invested independently after considering the track record of the fund. In any case, you have the option of entering any fund at any stage, so let the decision be made after you get wiser with the experience.

This way, you could shift your investments to new and better performing funds with a good performance history. Also, it would diversify your portfolio to realize your goals.

In past two years, good funds have given returns up to 50% or even more. Just watch the funds grow and pick up quality funds before choosing cumulative option.