So far i have invested only in 2 Funds. while investing i didn’t find the option to select Dividend reinvestment, as my investments are not high. I would like to select the option to reinvestment divident to buy NAV of same fund (keep adding units to the same fund from dividends received from fund house).
You have the option of selecting a growth plan on Coin where your dividends are invested into the fund which inturn increases your NAV. Read this article to know how a growth plan stands against a dividend reinvestment plan,
Is there a plan to add the dividend re-investment option for investments through Coin?
The point in the article about tax treatment being the same for both growth and dividend re-investment option is incorrect because of the differing ways in which the tax is calculated. Let’s say two investors, G and D, both put in Rs. 1000 into a mutual fund. G selects growth, and D selects dividend re-investment. For the sake of simplicity assume that both D and G have marginal tax rate of 30% and furthermore that dividend distribution tax is also 30% (it is actually slightly lower). Now, let’s say the mutual fund generates a 10% return on investment after costs. Both G and D’s units are now worth Rs. 1100 each.
In G’s case, if he sells his units he has to pay 30% tax on the Rs. 100 short-term capital gains. So he’s left with Rs. 70.
In D’s case, the fund will declare a dividend of Rs. 77 and pay Rs. 23 (70% of 77) as dividend distribution tax.
As you can see, D’s gains are 10% more than that of G. In absolute terms, the fund generated 10% returns, G’s post-tax return is 7%, whereas D’s post-tax return is 7.7% So as a rule, investors in the 30% tax bracket always prefer dividend reinvestment options for short term debt funds.
Now, I can always take out the dividend paid out and re-invest it myself. But obviously this is a cumbersome process and providing an option on the platform that does it is much better.