Dividend mutual funds fall under the category of stock mutual funds. These funds mainly invest in companies, which pay dividends, where profits earned by the companies are shared among the stock shareholders. Dividends earned from the funds can be utilized to buy more shares or received as a passive source of income. Dividend funds are mostly bought by investors, who wish to receive steady payments from their fund investment.
Let’s take a look at its key benefits:
- Due to its income generating nature, these funds serve as one of the best income options for retired or soon to retire investors.
- Dividend Mutual Funds are considered less risky or aggressive in comparison to growth mutual funds
- They are an ideal alternative to bond mutual funds; especially when economic conditions are good, but interest rates are low; dividend mutual funds offer higher yields than bonds.
- Dividend can be accessed without withdrawing the invested capital.
- Dividends can be reinvested to buy more funds of that high-dividend mutual fund.