What is the difference between dividend and growth options while selecting a mutual fund?

When you jump in to purchase a mutual fund, there are two options that you frequently see- Growth and Dividend. But what do they mean? Let’s discuss this in detail-

Growth vs dividend option in a mutual fund –

In dividend option plans, the dividends are distributed to the unitholders, so the NAV falls after dividends are distributed, but in the Growth option, the dividends are reinvested in the fund, so the NAV increases.
The total return in the dividend option plan is less than that in the growth plan because of periodic payouts. On the other hand, the total return of the growth option is much higher because of the long-term investment horizon.
In the dividend option plan, taxes are applicable as per the income tax slab of the investor. But in the growth option plan, the short-term & long-term gains tax depends on when you redeem your units.
Investors who need regular cash flow should go for the dividend option, but those who want to create a corpus for long-term goals should go for the growth option plan.