How do growth plans in mutual funds work?
Growth plans are a type of mutual fund option where the returns generated by the fund are reinvested back into the scheme rather than being paid out as dividends. This reinvestment contributes to the compounding of returns and a gradual increase in the Net Asset Value (NAV) of the units.
They are ideal for investors focused on long-term wealth accumulation and who do not require periodic payouts from their investments.
Key features of growth plans
- No interim payouts; all earnings are reinvested
- NAV increases over time if fund performs well
- Gains are realized only when units are redeemed
- Tax on gains applies at the time of redemption (STCG or LTCG)
What if...
| Scenario | Explanation |
|---|
| You want regular income | Growth plans don’t offer payouts; consider IDCW (dividend) options instead. |
| You plan to invest long-term | These plans allow compounding, making them effective for long horizons. |
| You track NAV growth | NAV reflects the fund’s reinvested gains over time. |
| You want to delay taxes | Tax applies only on redemption, helping defer capital gains taxation. |
Growth plans are suited for investors aiming to grow their corpus over time through reinvestment. Ideal for long-term goals like retirement or wealth building.
Last updated: 16 Jun 2025
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