Dividend mutual funds are stock mutual funds that primarily invest in companies that pay dividends, which are profits that companies share with stock shareholders. Dividends can be received as a source of income or they can be used to buy more shares of the mutual fund. Most investors who buy dividend mutual funds are usually looking for a source of income, which is to say that the investor would like steady and reliable payments from their mutual fund investment.
In most cases, because of their income-generating nature, dividend mutual funds are best-suited for retired investors. Dividend mutual funds also tend to be less aggressive (less risky) than other types of funds, such as growth stock mutual funds.
Some investors also like to use mutual funds that pay dividends in economic environments where bond mutual funds are not attractive. For example, when interest rates are low but economic conditions are generally good, bond funds can have lower yields than dividend mutual funds.
Dividend Mutual Funds– How dividend are paid?
- Growth linked mutual funds invests with objective of capital appreciation.
- Dividend linked mutual funds invests with objective of dividend payment.
- Dividend is paid from the profit made by the fund in last one year (say). If there is no profit there will be no dividend disbursement.
- Dividend can be credited directly to investor’s bank account.
- For this the investors must select the ‘dividend payout’ option instead of ‘dividend reinvest’ option.
In case of dividend reinvest option (growth), the reinvested amount is used to buy more units at prevailing NAV. In this case the investor will see the number of units growing. But there will be no cash in-flow in short term.