DIVIDEND PLANS – frequently asked questions


What are Dividend Plans in Mutual Funds?
Are Dividend Plans active due to rising market?
Who should opt for these plans? Does it help in Tax saving?

What are Dividend Plans in Mutual Funds?
The returns that an investor gets in a dividend plan, are of two types;

  • Value appreciation
  • Dividend

Higher the dividend, lower will be the value appreciation and vice-versa. Mutual funds, especially well established, normally has a provision of 24 months dividend outflow, i.e. even if the market falls, investor continues to receive dividend.The total value of dividend passed on to an investor is proportionately adjusted from the NAV.

Capital Loss; there is a possibility, where the NAV is not appreciated to the extent of high dividend declared, and if an investor opts for early redemption, he/she will face the capital loss.

For balanced funds, generally 10% p.a. dividend is declared, where historically capital appreciation is around 12%- 13%. As we know, generally total returns are higher than dividend received, so it’s very rare that investor will face such scenarios in long term.

Are Dividend Plans active due to rising market?

High dividend yield is good only if an individual/ family needs a regular income. Rising market or falling market, cannot be a reason to attribute any fund, it should always coincide with investor’s requirement and risk tolerance.

Who should opt for these plans? Does it help in Tax saving?

Dividend option in balanced funds are advisable for an investor, who are seeking monthly income from their investments, which currently provides stable dividend @ 0.83%p.m. or 10% p.a. The income in the form of dividend currently is tax free, also the long-term gain is not taxable when funds are redeemed (like any equity fund).

Disclaimer: Investment in securities, including mutual funds, variable annuities or variable life Insurance, is subject to market risks, including the potential loss of principle and fluctuation in value. Past performance does not guarantee future results. You should consider the Investment objectives, risks, charges and expenses of investment securities carefully before investing. Read the prospectus carefully before investing. Insurance is a subject matter of solicitation.

Rohit Grover
Rohit is a senior certified financial planner at Moneyfrog.in. He is part of Moneyfrog’s research team and keeps track on the fund movement & the market.
He is an expert with numbers. Formulas & analytics.

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