Dividend Option in Mutual Funds - Why you should not opt for it?

 No. #1 reason not to choose Dividend option in Mutual Funds is that DIVIDENDS ARE TAXABLE at your tax-slab rate - they get added to your income. 

No. #2 reason which many are not aware is that: Dividend pay-out in Mutual Funds is taking from your money & giving it back to you. 

To explain this with an example: Let us assume: 

Investment Amount: 1 lakh

Purchase unit price (NAV): 10/- 

No. of units purchased: 10,000 units (1 lakh / 10)

Now assuming the unit price is 20/-, the fund value will be 2 lakhs (10000 units * 20). 

The fund declares a 10% dividend & so you will receive 20,000/- as dividend. (10% of 20 = 2 * 10000 units = 20,000/- dividend). 

Soon after the dividend is declared & paid out, the unit price of the fund will fall to 18 from 20 (10% less as it has been declared as dividend). 

Your fund value now will be: 18 * 10000 = 1.80 lakhs. 

This 20,000/- is also completely taxable for you.