Two major options are available for investing into mutual funds. One is the growth option and the other is the dividend option. In case of a the former, the asset value of an investor increases by the increase in the NAV of the scheme he is invested in. In this case the NAV fluctuates according to the market. The investor has no control on the returns.

In case of a dividend option, an investor is given a dividend when the market increases. The same also has a dividend reinvestment option in which equivalent units are given instead of the cash to be paid as dividend. 

In case of a the former, an investor has no choice but to redeem his investments when the market goes up inorder to get the benefit of a surging market.

In case of a dividend option, the investor gets a return if his investments increase in value due to market appreciation.

However, the returns in both the schemes are the same.

If a direct dividend payout is made, then the chance of future appreciation of the portfolio becomes less. That is not the case with the growth option. However if an investor requires regular flow of money, then the dividend option is better for him.

There is no difference between the appreciation option and the dividend reinvestment option.

In case of growth option, capital appreciation tax has to be paid if redeemed before twelve months. In case of dividend option, no such tax is levied.          

Thus an investor has to make his choices as per his needs and targets. Both the options are good in their own merits and suits different investor profile.