Question

What is the 'growth in NAV' concept and how does compounding work in the growth option?

Accepted Answer

In the growth option, all income (dividends from stocks, interest from bonds) and capital gains are retained in the scheme — these reinvested earnings generate further returns, creating a compounding effect that grows NAV exponentially over time — In the growth option, no income is distributed — all dividends received from portfolio stocks and interest from bonds are reinvested, and capital gains from portfolio trades remain within the scheme. This reinvestment means every rupee of income earns further returns. Over 10-20 years, this compounding dramatically outperforms the IDCW option where distributions reduce the investable corpus.