• Are you always struggle to find out real difference between growth option and dividend investment option because conceptually in both the cases you don’t get any dividend?
• Why there is growth option even though we have dividend reinvestment option?
• Have you ever see, in your folio units allotted to you initially increased? Normally value of the units appreciates but number of units remains unchanged.
If you want to know when this could happen to you please read further….
I have drafted my conversation with Mr. Sunder working in RBS as Project Manage, which took place in first half an hour of PM Footprints session. All project management practitioners meet at PM Footprints twice a month for interactions and knowledge sharing amongst fellow PM community. First half is allocated to coffee/tea break which is utilised for networking.
Venue: Central Park Hotel, 47/1, Manipal Center Dickenson Road Bangalore
Conversation start as below…
Sunder: Hi Arvind, I see your blog. Not sure if have any idea about Tax saving mutual funds.
Arvind: Yes I have.
Sunder: I invested in tax saving mutual fund long back but when I tried to redeem the units, I got the money for most of units and not for all. 1800 customer care executive is saying that you would never able to redeem the all the units allotted to you completely in life time.
Arvind: Oh really?
Sunder: I am wondering how it is possible and why we invest if we can not redeem all the units in our lifetime.
Arvind: Did you see increase in number of units allotted to you form the time you invested.
Sunder: Yes, but I never purchased again. Not sure how come units are increasing rather than appreciating its value.
Arvind: I got what the issue is. Actually while purchasing you have opted the dividend reinvestment option rather than growth option.
Sunder: But both the options are same right. Any way I will not get the dividend back and money remains invested in both the options.
Arvind: yes you are right but there is fundamental difference. When you choose dividend reinvestment option, technically you get dividend and that is reinvested into same folio. So your units increase.
Sunder: Oh that is why units are increased.
Arvind: yes but important point to note here is if it is tax saving mutual scheme then these new allotted unites are locked for next there years as per current locking period. So technically you would never able to redeem all the units because after three years when time will come to redeem these units, mean while you will be allotted other units as part of dividend plan which will be locked again for next three yeas.
Sunder: But I don’t remember I ever opted for dividend reinvestment option.
Arvind: Could be, your agent would have selected option while submitting the application.
Sunder: Oh that’s bad! What should I do now? Can’t I get out of it?
Arvind: Yes you can. You have to just write a application to your fund house opting for direct pay out in place of dividend reinvestment option.
Sunder: Oh that’s really cool. Thanks for your suggestion.
Lessons out of this story:
• Don’t only sign and give any application to agent allowing him to fill and choose the options.
• Learn some basics before trying out some new investment options.
• All managers are not good in managing their investments.