CASH FLOW NEEDS
Depending on your cash flow needs you can look into cash flow requirements. If there is requirement for interim cash flows from the investment, then the dividend option is better, whereas if there is no interim cash flow requirement, the growth option is better where the returns are reflected in the movement of the NAV.
In order to encourage your savings and growth, it is important that you invest as much as you can, after you have analyzed what your saving potential is.
TAX TREATMENT:
Dividends are tax-free in the hands of the investor, but there is a dividend distribution tax (DDT) that is deducted by the AMC on behalf of the investor and passed on to the government.
In the growth option, there would be no distinction between short-term and long-term holdings as such, but the benefit of indexation would be applicable for a holding period of one year from the end of the financial year in which the asset is acquired. The taxation on the growth option would be as per the slab rates, which means 30% for most investors.
Since both dividend and growth options would be taxable at the hands of the investor, there would not be much of a difference in terms of taxation except where the intended holding period would be enough to be eligible for indexation benefit. In that case, the growth option would be more tax efficient.
Direct Tax Code (DTC), scheduled to be implemented from April 1, 2012 where the returns from the dividend option will be clubbed with the income of the investor (i.e., there would be no distribution tax) and would be taxable at the slab rates.
Depending on that your investment can be carried out. Buying a personal loan or a car loan can make your savings go below than much more what you can invest.