Dividend Mutual fund schemes allows investors to avail intermittent cash flows, which comes handy as often works as regular income. This option is pretty popular among all investors. However, there are certain things, one should know before opting for Dividend funds.
- Dividend is released from profits earned during the investment phase. This profits are gains received by fund manager by booking profits, selling units or obtaining interests, which is more likely in case of debt funds.
- Investor can obtain dividends annually, quarterly, monthly, weekly or even daily. However, the amount of the dividend is not fixed and varies based on the market condition. Whenever the Net Asset Value grows higher, the fund house releases dividends.
- Dividend in the hand of investors is tax free. Tax is paid by the fund house in case of debt mutual funds; while no distribution tax is applied in equity mutual fund.
- Divided is good for all investors, however compounding in Dividend funds won’t be as effective as that for SIP due to regular payouts.