What is the difference between Growth and Dividend Mutual funds?

Answer 1

Growth mutual funds typically invest in growth stocks while dividend mutual funds typically focus on companies which pay dividends.

That said, mutual funds are appropriate for some and the wrong investment for a growing number of people.

For me, I would NOT invest in mutual funds if it weren't for having a 401K.

Overall, Mutual funds are not good (once you're educated in investing) and many people should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).

Here's why.

First of all, mutual funds exist to take average person's money.

Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds. Over 60% of the mutual funds out there can't even outperform the market. That's VERY SAD!

Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.

Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in NOT "losing" you lots of money. That way you stay with them and they continue to collect their fees.

Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.

Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.

Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).

Convniced yet? Need more?

Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc. or right now, Brokers/Dealers, Retail, and insurance!

Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like Times Warner, Microsoft, home depot, cisco, ebay which have been sideways for years? I think not.

A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the high fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but with much less overhead!

See Amex.com (american stock exchange) or ishares.com, holders.com for more info.


You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many).

Let me know if you have further questions.

Best of luck!

Answer 2

Dividend is given by company on the shares. Growth for a Mutual fund means the total fund value grows depending upon the share value. On growth of fund mutual funds also give dividend.

Answer 3

A growth fund invests in stocks that don't usually pay a dividend. The companies invest all of their profits back into the company to make it grow bigger. A dividend fund invests in stocks that pay a dividend. You would be looking for a combination of growth and dividend yield.
Neither one has anything to do with weather or not you reinvest the earnings each year or take a distribution.

Answer 4

In a growth option, the capital value of your investment increases (i.e. if you invested $1000 this value may increase by an undefined amount depending on the market, say $200)
Dividend funds don't invest focusing on the capital growth. Instead they aim to pay dividends, much like a term deposit (you get interest every month, but with dividends the companies will pay a defined amount per share you own, say for example 20 cents.) You have the option to either have the dividend paid into your bank account or reinvest it into your investment.

Answer 5

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks.

Divident Mutual Funds are investment pools that invest primarily in preferred shares, with the objective of maximizing dividend income and the resulting dividend tax credit.

Answer 6

The labels "growth" and "dividend" hardly mean anything. They are more of a marketing label and hence there is no one single definition.

Having said that, the mutual fund companies typically use those labels to describe the types of stocks they purchase (think of those labels as a mission statement).

Growth funds typically purchase stock in companies that are growing their companies and therefore those companies typically plow their earnings back into the company.

Dividend funds typically purchase stock in companies that are distributing their earnings to their shareholders and not using their profits to build their business quite as much. Dividend paying companies typically have a nice balance sheet.

Both a growth stock fund and a dividend stock fund can play an important role in building a diversified portfolio.

Answer 7

the diffrence is like ,in Growth option the dividend is attached to the price year by year and thus the rise of mutual funds take place.
while in Dividend option you will be paid dividend seperately year by year thus the rate of mutual fund will fall after dividend and rise slowly again till the next dividend time.