Before selecting Dividend Mutual Funds, you must understand Dividend.
These posts will help you have a better knowledge of Mutual Funds and their selection, then just a random walk into multiple funds. Now let us get to the topic.
Equity Dividend vs Mutual Fund Dividend : The equity dividend is a payment of reward made by a corporation to its shareholders from a portion of a company's earnings and is paid to a class of its shareholders. When a corporation earns a profit or surplus, the corporation can either re-invest the profit in the business or pay a dividend or do both by paying only a proportion of the profit as a dividend to shareholders and re-investing the rest. Dividends are decided and managed by the company's board of directors and require shareholders approvals.
Whereas, Mutual Fund Dividend wait... are you assuming is the collection of dividends for shares within its portfolio and distributing it to you. You are not completely wrong, mutual fund dividend is the distribution of a certain amount from funds (usually profits) or gains by selling the shares at a price higher than its purchased price. In the case, of growth option, they are added to the NAV of the funds.
Points to remember before investing in Dividend Mutual Funds:
Mutual fund dividend is like booking profits after a certain duration.
As mutual fund dividend impacts funds NAV. Profit booking might look good in the bull market but, it can impact your principal invested in the bear market.
Some funds have a dividend option on the mercy of their fund managers while others have a dividend option after fix duration. Typically, fix duration dividend funds can be risky in the bear market.
After the introduction of DDT in mutual funds, you lose the benefit of saving CG until the permissible limit.
Equity Dividend and Mutual Fund Dividend are not the same.
Who should invest in Dividend Mutual Funds:
Constant Profit Booker - If your someone who likes to book constant profits in shares by paying 15% STCG.
Kal Ho Na Ho - If your someone who likes to see notification of Amount Deposited in Your Account now over compounding effect after many years in the future.
Unfriend Broker - Equity transaction can lead to a lot of brokerages. In Mutual Funds, it all inclusive in TER.
Market Timer - It is observed that some fund managers distribute dividends only when markets are inflated. These funds can help you time the market to a certain extent.
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