In dividend reinvestment option a dividend is declared by the MF house from a part of the profit which is then used to buy more MF units right. This dividend was earlier subject to DDT(Dividend dist tax) for both equity oriented and debt oriented MF and during redemption capital gain taxes were levied at the hand of the investor but from FY 20 -21 DDT has been abolished .So from now on both growth and dividend reinvestment option will yield the same returns (growth will give return in terms of increase in NAV and the latter will yield in terms of increase in the number of units and nav enhancement).is my understanding right?
@Bhuvanesh Can you.
If the dividends are above 5000 you have to pay Income tax on it.they will issue TDS certificate to you if it happened with single fund.if you got dividends above 5000 from multiple sources you have to pay Income tax on it.
Dividends reinventmemt option is suitable if you fall under high income tax slab.
Hope @Bhuvanesh will add/correct my information
First thing, Mutual funds don’t issue dividends - that term is mis-leading here. The AMC may not always book profits, it might just sell units and announce it as a dividend.
Nope. There is absolutely no reason for you to invest in dividend plans, none whatsoever, stick to growth plans.
In dividend option there are 2 suboption of dividend payout and dividend reinvestment .In my query I was talking about dividend reinvestment option. They reinvest the dividend which is given out of profit booked by amc and use them to buy more units .So after abolition of DDT both growth and dividend reinvestment will give same return.
Dividends are taxed as per your slab + TDS, in growth plans there’s no tax implication till you redeem. Which means growth plans will be better than div reinvestment. Here’s an example