Difference Between Dividend and Growth

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There are two types of investment sets – Growth and Dividend. Both types of investments have their advantages and disadvantages. The investment type depends on the investment horizon and circumstances and the objective of the investment for which the investment has been made.

Generally, the terms growth and dividend are used in the mutual fund world, where these are the two kinds of mutual funds currently available in the open market.

Dividends vs Growth Infographics

Key Difference

  • Dividend stock is more prevalent in the market as the cash investmentCash InvestmentCash investment is the investment in short-term instruments or saving account generally for 90 days or less that usually carries a low rate of interest or the return with a comparatively low rate of risk compared to other forms of investment.read more is repaid in dividends by the stock or the mutual fund houses. On the other hand, growth stocks are where the money stays invested and is not withdrawn after periodic intervals.In growth, the excess return generated on the stock is re-invested in the stock itself. In contrast, in the case of dividends, regular returns are given to investors at every interval.Profits in growth investmentGrowth InvestmentGrowth Investing refers to capital allocation in potentially high earning companies such as small caps and startups, which grow much faster than the overall industry or mature companies. Because the returns on such investments are high, the risk that such investors face is also higher.read more can only be materialized when sold or redeemed, whereas, in dividend stocks, the excess profits can be withdrawn in the form of dividends.Dividend stock is more closely related to companies with steady cash flows, and there is no major capital expenditureMajor Capital ExpenditureCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more. Growth stocks have a possibility of growth as the companies’ future projections and significant capital expenditure will give them a return over a longer period.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 to reap the benefits.

Dividend vs Growth Comparative Table

What Option to Choose?

Whether to opt for dividend or growth funds depends on the investor’s time horizon, the risk preference, and the kind of return he is looking for. Investors looking to create wealth for a longer-term horizon should invest their proceeds in growth to stay invested and enjoy more extended returns. Undergrowth investment, you will not receive any immediate return or any payment in kind of interest. Still, your investment will multiply over the years, whereas, on the other hand, dividend investment is for those investors looking for fixed and steady cash flow over the years.

Conclusion

In reality, no mutual fund or investment is perfect or always rewarding. But investing should be a habit that wants to secure their future and achieve some goals out of that investment, which can make a better future for them.

Dividend stocks have the power to generate superior returns over growth stocks. As per S&P 500 index performance data, dividend stocks tend to outperform the broader stock market and the growth stocks.

But as we all know, the return fluctuates and depends on the market sentiments, the company’s investor relations, the company fundamentals, and other external factors.

Mutual fundsMutual FundsA mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etcread more should be selected according to the goals and needs of the investor. If an investor is looking for superior returns, short-term and high-risk equity mutual investments are what he should opt for. If an investor is planning to invest in short-term and less risk, he should invest in debt mutual funds.

This has been a guide to Dividend vs. Growth. Here we discuss the top difference between dividends and growth, infographics, and a comparison table. You may also have a look at the following articles –

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