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

Similar Terms

New Fund Offer

Equity Mutual Fund

Hybrid Mutual Fund

Systematic Investment Plan

Systematic Transfer Plan

Growth Option of Mutual Fund