Asset Management Tutorial
- Portfolio Management
- Portfolio Management Career
- How to Get Into Asset Management?
- Risk Adjusted Return | Top 6 Risk Ratios You must Know!
- Sharpe Ratio | Comprehensive Guide with Excel Examples
- Treynor Ratio | Formula | Calculation | vs Sharpe Ratio
- Portfolio Standard Deviation
- ETF vs Index Funds
- 401k vs Roth IRA
- IRA vs 401k
- Financial Planning Apps Softwares
- Top 10 Best Wealth Management Books
- Top 10 Best Portfolio Management Books
- Hedge Funds
- What is Hedge Fund?
- How Does A Hedge Fund Work?
- Hedge Fund Strategies
- Hedge Fund Risks
- Hedge Fund Jobs
- How to Get Into Hedge Fund?
- Top 20 Hedge Fund Interview Questions and Answers
- Convertible Arbitrage
- What is Fund Management? | Top 8 Styles and Types
- Funds of Funds – Complete Guide | Structure | Strategies | Risks
- Types of Alternative Investments | Complete Beginner’s Guide
- Top 10 Best Hedge Fund Books
- Mutual Funds
Difference Between Dividends vs Growth
There are two types of investment sets – Growth and Dividend. Both types of investments have their own advantages and disadvantages and the investment type depends on the investment horizon and circumstances and the objective of the investment for which the investment has been made for. Generally, the term growth and dividend are used in the mutual fund’s world where these are the two kinds of mutual funds currently available in the open market.
Int his article, we look at the differences between Dividend vs Growth.
Dividends vs Growth Infographics
Here we provide you with the top 7 difference between Dividends vs Growth.
Dividends vs Growth – Key Difference
Key Differences between Dividends and Growth are as follows:-
- Dividends stock are more popular in the market as the cash investment is repaid in the form of dividends by the stock or the mutual fund houses. Growth stocks, on the other hand, is where the money stays invested and is not withdrawn after periodic intervals
- In growth, the excess return generated on the stock is re-invested in the stock itself whereas in the case of dividends periodic returns are given to investors at every interval
- Profits in growth investment can only be materialized when they are sold or redeemed, whereas in dividend stocks the excess profits can be withdrawn in the form of dividends
- Dividends stock are more closely related to companies with steady cash flows and there is no major capital expenditure in the near future. Growth stocks whereas have a possibility of growth as the future projections and significant capital expenditure of the companies will give them return over a longer period of time
- If the investor is looking for liquidity and cash at periodic intervals he should opt for dividend investing. If on the contrary an investor is looking for growth and wants to stay invested for a long time he should opt for growth mutual fund stocks, in order to reap benefits
Dividends vs Growth Head to Head Difference
Let’s now look at the head to head difference between Dividend and Growth
|Shorter time horizon as cash inflow is regular||Longer time horizon as cash flow is only at the end of a period|
|Cash inflow from the stock at periodic intervals||Cash inflow at redemption or sale only|
|A release of excess return||Re-investment of excess return|
|The money received are tax-free at the hands of a unitholder||The money is only tax-free in some schemes of mutual funds if you can stay invested for 15 years or more|
|Dividend stocks offer consistent cash flow which is potentially less risky than growth stock because the investor is getting money at regular intervals||Growth stocks have the potential of higher returns for investors. Growth stocks are compatible for those investors who are not looking for instant cash flow and are looking to stay invested for a longer time|
|Dividend stock generally outperform growth stocks||Growth stock generally underperform than dividend stocks|
|Under dividend stock, the investor losses on the compounding of the excess return of the stock as the money are withdrawn in the form of dividends by the investor||In growth stocks, the excess profits get compounded and stay re-invested which in return increases the value of the investment and is compounded every period|
What Option to Choose – Dividend or Growth?
Whether to opt for dividend or growth funds it depends on the investor time horizon, the risk preference and the kind of return that he is looking for. Those investors who are looking to create wealth for a longer term horizon should invest their proceeds in growth to stay invested and enjoy longer returns. Undergrowth investment you will not receive any immediate return or any kind of payment in kind or interest, but your investment will multiply over the years whereas on the other hand dividend investment is for those kinds of investor who are looking for a fixed and a steady cash flow over the years.
In reality, no mutual fund or investment is perfect or always rewarding in nature. But investing should be a habit who wants to make their future secure and achieve some goals out of that investment which can make a better future for them. But as we all know that the return is fluctuating and depends on the market sentiments, company’s investor relation, a company’s fundamental and other external factors. As per the data of S&P’s 500 index performance dividend stocks tend to outperform the broader stock market and the growth stocks. Dividend stocks have the power to generate superior returns over growth stocks.
If an investor is planning for investing in short-term and less risk he should invest in debt mutual funds. If an investor is looking for superior returns ins short-terms and high-risk equity mutual investment are what he should opt for. Mutual funds should be selected according to the goals and needs of the investor.
This has a been a guide to Dividend vs Growth. Here we also discuss the top difference between Dividends and Growth along with infographics and comparison table. You may also have a look at the following articles –