Fund Options - Growth and Dividend
Like all other equity mutual funds, ELSS also offers the growth and dividend options to the investors. You can choose either of the following at the time of investing in an ELSS.
When you choose the growth option, you allow the mutual fund house to further invest the returns that you earn to generate more returns. In other words, you allow the fund house to reinvest your returns for generating compounded returns. When you redeem the amount at the end of the lock-in period or sometime later, your entire investment along with the returns is paid out to you.
If you need the returns to be paid out to you periodically in the form of dividends, then you must select the dividend option. In this case, your returns are not reinvested but paid out to you whenever a dividend is declared by the fund house.
One thing to remember is that unlike in other equity mutual funds, the dividend reinvestment option is not available in case of an ELSS. There were some procedural problems because of which the Association Of Mutual Funds Of India (AMFI) discontinued this option in 2015.
Which one to choose?
If you are looking for periodic payouts from the ELSS fund, then you must choose the dividend option. It is ideal when you either need the dividends to meet your spending obligations or want to invest the returns in some other fund and not the same ELSS again.
The growth option is ideal for those who are looking to build their wealth. This option offers the benefit of compounded returns. Hence, if the markets perform well during your holding period, then the amount that you can get upon redemption can be substantial. Go for this option if you are not in the need of regular payouts of the returns that you earn.