Which Mutual Fund to Choose
Following are different types of Mutual Fund
Most of the mutual fund scheme offers 3 types of investment plans:
1. Dividend Plan
2. Growth Plan
3. Dividend reinvestment Plan

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 50 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 40.

When to choose this plan?
Are you looking for income? Do you want to ensure your investments provide you with regular income? If so, then opt for dividend option. It will also help you book profits and thus protecting your investment from a sharp fall, caused by market crash.

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. The only way you can benefit from this increase is by redeeming your investment.

When to choose this plan?
On the other hand, if you are saving for some future long term goal like retirement planning, always remember growth plan is ideal for you.

Dividend reinvestment
If you want to buy more units of the mutual fund scheme without paying for them, then dividend reinvestment is for you.
Mutual funds let you choose between taking the dividend or reinvesting it. If you select this option, the dividend is reinvested into the fund to purchase more units. As a result, the number of units you possess will increase. This doesn't happen in either growth or dividend option.

When to choose this plan?
Want to purchase more units of the fund but don't want to put your own money? Then let mutual fund pay for your purchase, by opting for dividend reinvestment plan.

Some Precautions

1. Which plan you will choose will be decided by your specific condition and your goal.
2. Dividends from the mutual funds are not guaranteed.
3. Similarly if you think growth plan will keep your capital appreciating for good, it is not true A sharp stock market crash can wipe out any increase in capital.

So always consider these factors before deciding which plan to choose.
Are you looking to invest in mutual fund but don't know which mutual fund to select then following steps will help you to decide the right mutual fund based on your needs.
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