Chances are you have heard about dividend option in a mutual fund. If not, then there is no need to worry since it’s never going to take long before you finally leverage what it has to offer. Before going any further, a mutual fund scheme can declare dividend for its unitholders based on the realized profits in its portfolio. No wonder dividend options in mutual fund schemes seem to be attracting the attention of many investors.
One might wonder how the dividend payment works. Well, schemes of mutual funds have the freedom of determining their own frequency to pay a dividend. This can either be done on a daily, weekly, monthly, quarterly, or even yearly basis. Alternatively, the payments may occur when having surplus money to declare a dividend. Be sure to figure out how the payment works before you think about applying.
You should, however, keep in mind the dividend is not guaranteed by a scheme and there is no assurance of its payment. Nevertheless, most are more than willing to pay dividend and honor their respective mandate. Either way, investors ought to know dividends are not certain and the amount tends to vary.
The good thing about dividend received from all mutual fund schemes be it hybrid, debt, or equity is tax-free on the hands of the investor. Things tend to be quite different when it comes to debt funds since the fund house makes do with a dividend distribution tax of about 28.84%. Of course, this also includes cess and surcharge. So do not worry about the prospect of dividends being taxed in the hands of the investor as it does not happen that way.
Final Thoughts
There you have it some of the most notable things you ought to know about dividend options in mutual funds. Be sure to access every piece of information you may need before filling the application form. Fortunately, you can leverage the internet in this regard and clear your mind of any doubts regarding dividend options in mutual funds.
