Index funds Dividends

Hi, Can someone tell me are the dividends for Index funds with growth option distributed to the Unit holders?


They are re-invested in the fund and reflect in the NAV

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Are the dividends reinvested to buy the same securities? In that case would not the allocation/composition change w.r.t. the index composition?

what is the difference between " growth plan" and “dividend re-investment plan” ?

In a dividend reinvestment plan (this has a more complicated name nowadays) the dividend is deemed to have been paid out, and then reinvested. So you are liable to pay tax on this dividend, though it didn’t reach you!

This perhaps used to make sense when dividends from equity mutual funds were not taxed. They don’t make any sense now.

In a growth plan, your money continues to grow until you sell.

The term “dividend” is a misnomer. Mutual funds don’t pay dividend. What they do is book profits and pay you back your money, which was unfortunately called a dividend. In a re-investment plan, this would be reinvested. It makes no sense for most investors to invest in these plans. Better to stick to growth.

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