Mutual Funds – All you need to know
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Dividend Payout Option in Mutual Funds – Meaning & Features
Key Mutual fund Terms
The dividend payout option allows investors to receive a portion of the profits generated by a mutual fund as cash distributions.
Key aspects of this option include:
Periodic Income Distribution
When the mutual fund declares a dividend, the payout is credited directly to the investor’s bank account.
Reduction in NAV After Dividend
Once a dividend is distributed, the Net Asset Value (NAV) of the scheme decreases by the amount of the dividend.
Suitable for Income-Oriented Investors
This option may appeal to investors who prefer periodic income from their investments, such as retirees or individuals seeking supplemental cash flow.
Not Guaranteed Payments
Dividends are not guaranteed and depend on the performance and profitability of the fund.
Lower Compounding Potential
Since profits are distributed rather than reinvested, the long-term compounding potential may be lower compared to the growth option.
Tax Implications
Dividend income may be taxed according to the investor’s applicable tax slab depending on prevailing tax rules.
Investors should choose the dividend payout option only if they specifically require periodic income. For long-term wealth creation, many investors prefer the growth option because it allows profits to remain invested and compound over time
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