When I made my first mutual fund investment many years back, the one thing I knew even back then was that I was investing to grow my money. So the MF agent/distributor (even though he called himself an “advisor” and was an RM at a bank) told me to pick the “Growth” plan rather than the “Dividend” plan of my selected MF scheme – mainly because the former was suited for longer-term investors while the latter was more suited for people who wanted regular dividend income.
As such for the longest time, I used to think that the dividend-plan of mutual funds invested in dividend-paying companies & passed on the stock dividends earned from these companies to investors. And then I’d wonder how it was possible for most mutual fund schemes to have a dividend plan that gives dividends? How were some paying quarterly dividends, when most Indian companies only paid annual dividends?
At smallcase, I was recently researching on dividend investing strategies in India – and during the course I realised that even today after so many years, there isn’t much clarity about what exactly are mutual fund dividends & how they function. Still today, many investors opt for the dividend plan thinking they will get additional income, but this is hardly the case.
I’ve summarised my research in this blogpost on Everything you need to know about MF Dividends& Dividend Plans - any feedback and comments would be much appreciated. Happy investing!