June 07 , 2012
In a dividend option fund, when the value's increases the excess is removed from the fund and assigned for payment to the investor. In the payout option, they are actually transferred into your bank account (as again reinvestment option, where they are ploughed back into the fund). In some funds, you can even choose the frequency of dividend payout.
You may opt to receive this payout by cheque or electronic transfer. The latter saves you the hassle of making sure you are at home to collect the cheque when it comes, and remembering to deposit it in the bank. Unfortunately, the electronic option is not available currently in all banks and branches. If you are a heavy mutual fund investor, you might want to open an account in a bank that has this facility, so that you do not miss out on dividends or redemption payments.
Dividend payout option is most suited for pensioners living off returns on their investments.