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Dividend Mutual Funds – Gulaq Explains

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Dividend Mutual Funds

Dividend yield mutual funds invest in companies paying high-dividends. Companies can either re-invest the yearly net profit or distribute it amongst the stakeholders. These funds invest largely in those companies which distribute a large part of its profits, thus, declaring themselves high-dividends.  

Generally, these are government-owned companies and also, private-sector companies which regularly pay back to their stakeholders in the form of high-dividend just to maximize shareholders value.  

TYPES OF DIVIDEND YIELDING MUTUAL FUNDS 

They are classified into two categories: 

  • Dividend Yielding Mutual Funds (Debt) 
  • Dividend Yielding Mutual Funds (Equity) 

If a dividend allocates more than 65% of the assets in equity class, then it is classified as Dividend Yielding Mutual Funds (Equity); else, the fund will be classified as Dividend Yielding Mutual Funds (Debt). Apart from the pattern of asset allocation, these funds also differ with each other in terms of tax-treatment and returns.  

Given below are some of the funds that can be taken as Dividend Yielding Mutual Funds. Here: 

Fund Name  3-Year Return  5-Year Return  AUM 
       
UTI Dividend Yield Fund  7.71%  7.78%  2,413 crores 
Principal Dividend Yield Fund  5.42%  6.70%  202 crores 
Templeton India Equity Fund  6.91%  8.21%  953 crores 

 

BENEFITS OF INVESTING IN DIVIDEND MUTUAL FUNDS 

Here: 

  • Dividends are treated as tax-free at the hands of the investor. 
  • These funds help to minimize the volatility of market-risk & act as a hedge against market-chaos. 
  • A stream of high-dividends can bring-in steady cash-flows in the regular form of dividend income.  

TAX-TREATMENT OF DIVIDEND YIELDING MUTUAL FUNDS 

Fund Type  DDT Rate  Effective DDT Rate 
     
Dividend Mutual Funds (Equity)  10%  11.64% 
Dividend Mutual Funds (Debt)  25%  29.12% 

 

Dividends paid by equity mutual funds are subject to DDT (Dividend Distribution Tax) of 10%. The effective tax-rate including the cess and surcharge comes at 11.68%, this tax is deducted as the time of paying the dividend.  

 

If you are looking to invest in mutual funds, hop on to www.gulaq.com or you can talk to the experts.  

 

*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.

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