Dividend plan: The investors opting for the dividend plan get dividend whenever the mutual fund declares dividend in the particular scheme. As a result, NAV of the fund falls by the amount of dividend declared. For example, if the NAV of the fund is Rs 100 and the fund house declares a dividend of Rs 10 per unit, then the NAV of the fund will go down by Rs 10, i.e. new NAV becomes Rs 90, since that amount gets distributed among its holders.
If you are looking for income then you can go for this plan. It will also help you book profits from time to time and thus protecting your investment from a sharp fall in the share market. Remember, returns on dividends are not guaranteed, so dont depend on it for regular income.
Growth plan: In growth plan, the investor does not get any dividend. Rather the NAV goes on increasing, generating capital appreciation. For example, if you have invested Rs 100 in a fund, whose NAV is Rs 50, you are allotted 2 units of the scheme. In the growth plan, if the NAV appreciates to Rs 60, the worth of these 2 units would be Rs 120. So while the number of units remains the same, the worth of your investment has gone up. You can benefit from this plan by selling your investment.
There is another variant for this plan called as Dividend Reinvestment plan. Here the dividends declared are re-invested into the same fund. In this case the number of units you hold will increase, but effectively it is same as growth.
If you are saving for some future long term goal like retirement planning, childrens marriage etc, then this plan is useful.
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