Everything you need to know about Mutual Fund Dividends

#1

Hey guys,

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!

-Vikas

#2

Nicely written Vikas, even I have read many of such Q/A in one of the portals named - investorq.com
They have nicely answered Users Mutual funds doubts.

#3

Thanks - that website didn’t seem to have any info though… :confused:

#4

I have read through your blog post but still have confusion about taxation here really. I see you said they were pretaxed, but how much taxes you really need to pay in order to get them ? You never mentioned that pretax at DDT rates, or they already well known ?

#5

“Mutual fund dividends are pre-taxed at DDT and are tax-free in the hands of the end investor”

When investing in stocks, tax only has to be paid when dividend income exceeds 10Lakh.