In addition to choosing the suitable mutual fund scheme for oneself, it is also important to choose the right plan. A mutual fund offers the investors various plans which differ on the basis of how the investment is structured, profit is distributed/invested and have different tax implications.
1. Growth Plan
In this plan the returns from the investment are reinvested and the capital appreciation is reflected in the growth of the NAV and can be realized by the investor only when he sells the fund. Profits are taxed as long term capital gains if held for more than a year and this plan is suitable for investors in the high income tax bracket.
2. Dividend Plan
Under this plan the dividend is distributed regularly and is suitable for people who want regular income. The distributed dividend is tax free in the hands of the investor, but attracts a dividend distribution tax.
3. Dividend Reinvestment Plan
Under this plan the dividend is declared but re-invested on behalf of the investor in the same scheme hence reflects in an increase in the number of units held by the investor.
4. Systematic Investment Plan
The investor is given the option of investing a constant sum regularly for a specified period in a structured manner. Any of the above three income distribution plans can be opted for with an SIP
5. Systematic Withdrawal Plan
Here the investor is provided the facility to withdraw a pre-determined amount from his fund at certain pre-determined intervals. Each withdrawal is treated as a partial redemption from the mutual fund and accordingly attracts income tax depending on the duration for which the part of the fund was held.