Hi,
I have been reading about the difference b/w growth and dividend reinvestment plans on internet and have some doubts. Please go through the following two scenarios and tell if my understanding is correct.
I'm in 20% tax bracket and invest Rs.100 each in two liquid fund schemes- growth as well dividend reinvestment and withdraw both within an year.
a) Growth scheme:
At the time of investing NAV was 100rs and while withdrawing 110rs. So the tax I will have to pay is 20% of 10 rs = 2rs. Actual profit = 8rs.
b) Dividend reinvestment:
Till the time of withdrawing the AMC received cumulative 10 rs profit. They will apply 28% DDT on each of these and will give me 7.2rs as dividend. So the tax I will have to pay is 20% of 7.2 rs = 1.44rs. Actual profit = 7.2- 1.44 = 5.76rs. Correct?
In short, according to current tax rules and my tax bracket, growth option is always better than dividend reinvestment, right?
Thanks in advance.
I have been reading about the difference b/w growth and dividend reinvestment plans on internet and have some doubts. Please go through the following two scenarios and tell if my understanding is correct.
I'm in 20% tax bracket and invest Rs.100 each in two liquid fund schemes- growth as well dividend reinvestment and withdraw both within an year.
a) Growth scheme:
At the time of investing NAV was 100rs and while withdrawing 110rs. So the tax I will have to pay is 20% of 10 rs = 2rs. Actual profit = 8rs.
b) Dividend reinvestment:
Till the time of withdrawing the AMC received cumulative 10 rs profit. They will apply 28% DDT on each of these and will give me 7.2rs as dividend. So the tax I will have to pay is 20% of 7.2 rs = 1.44rs. Actual profit = 7.2- 1.44 = 5.76rs. Correct?
In short, according to current tax rules and my tax bracket, growth option is always better than dividend reinvestment, right?
Thanks in advance.