Mutual fund investors can choose how dividend income is treated. Depending on the option selected, dividends may be:
- Paid out directly to your bank account (Dividend/IDCW payout option)
- Reinvested into the same scheme to buy additional units (Dividend reinvestment option)
- Not distributed at all, with returns accumulating in NAV (Growth option)
On FYERS, all three plan types—payout, reinvestment, and growth—are available depending on the AMC’s offerings.
Note: SEBI now classifies “Dividend” as IDCW (Income Distribution cum Capital Withdrawal). FYERS platforms may display IDCW instead of Dividend.
Impact of Dividends on NAV
When a dividend is declared and paid, the Net Asset Value (NAV) of the scheme falls by approximately the dividend amount. This is because the payout is deducted from the scheme’s assets.
Example:
NAV before dividend: ₹15
Dividend declared: ₹1 per unit
NAV after dividend: approx. ₹14
This NAV drop is normal and reflects the asset reduction after distribution.
Dividend Payout vs Reinvestment
| Option | What happens | Who should choose it |
|---|
| Dividend payout | Dividend credited to your bank account; NAV reduces | Investors who want regular income |
| Dividend reinvestment | Dividend used to buy more units at post-dividend NAV; unit count increases | Investors who prefer compounding and growth |
| Growth plan | No dividend distribution; NAV accumulates returns | Long-term investors seeking capital appreciation |
Dividends are not “extra returns” — they are a part of your own investment distributed back to you. Always compare dividend, reinvestment, and growth options before investing.
What If...
| Scenario | Explanation |
|---|
| NAV drops after dividend | Normal behaviour – reflects the payout. |
| You purchased just before the record date | You are eligible for the dividend, but the NAV will drop, so no extra gain. |
| You sold before the record date | No dividend, since you didn’t hold units on the record date. |
| You need a regular income | Dividend payout plans may suit you better. |
| You want compounding | Dividend reinvestment or Growth plans are better options. |
Last updated: 12 Sep 2025
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