Mutual fund dividend
This query is : Resolved
01 July 2019
Whether the dividend received from a mutual fund is taxable or not ?
01 July 2019
The dividend of equity oriented mutual funds is tax free in the hands of investors.
02 July 2019
Whether the dividend received from the balanced fund and debt fund is also tax-free or not ?
31 May 2020
1. What are dividend mutual funds?
A dividend mutual fund primarily invests in companies that pay dividends. These dividends are mostly profits that the companies share with stockholders/shareholders. The profits are earned by selling the stocks at a price higher than the price they were purchased. The asset management company (AMC) adds these profits to the Net Asset Value (NAV).
On the other hand, AMCs cannot consider unrealized profits (when the profit is still on paper) from the instruments for paying dividends. However, sometimes they declare some part of unrealized gains as dividends. This decision is up to the fund manager. The asset manager also has the option to send the money back to buy stocks or debt instruments as per the scheme.
2. When are dividends paid to investors?
The Asset Management Company can choose to pay dividends on a daily, monthly, quarterly or annual basis. This generally varies from one scheme to another. Even though most dividend mutual funds strive to pay dividends and stick to their respective mandate, it is never guaranteed. The dividend amount is never fixed. An investor must also understand that under the dividend option, the Net Asset Value is not allowed to grow higher than a specified value. Once the NAV reaches its critical value, the fund house pays out the dividends.
3. What are the tax implications of dividends?
Dividends obtained from a mutual fund is tax-free in the hands of the investors. However, the fund house pays a dividend distribution tax (DDT) of 29.12% on debt funds. This is inclusive of surcharge and cess. On the other hand, in an equity mutual fund, there is no dividend distribution tax. For investors who are looking to have intermittent cash flow through moderate-risk investments, dividend equity funds could be the best bet. Also, there is no DDT on equities.
Investors can opt for growth or dividend option based on their investment goals. So, people who wish to grow wealth over the long term, usually opt for growth option – this is because the compounding benefit is lost when he AMC pays you dividends.
A dividend mutual fund primarily invests in companies that pay dividends. These dividends are mostly profits that the companies share with stockholders/shareholders. The profits are earned by selling the stocks at a price higher than the price they were purchased. The asset management company (AMC) adds these profits to the Net Asset Value (NAV).
On the other hand, AMCs cannot consider unrealized profits (when the profit is still on paper) from the instruments for paying dividends. However, sometimes they declare some part of unrealized gains as dividends. This decision is up to the fund manager. The asset manager also has the option to send the money back to buy stocks or debt instruments as per the scheme.
2. When are dividends paid to investors?
The Asset Management Company can choose to pay dividends on a daily, monthly, quarterly or annual basis. This generally varies from one scheme to another. Even though most dividend mutual funds strive to pay dividends and stick to their respective mandate, it is never guaranteed. The dividend amount is never fixed. An investor must also understand that under the dividend option, the Net Asset Value is not allowed to grow higher than a specified value. Once the NAV reaches its critical value, the fund house pays out the dividends.
3. What are the tax implications of dividends?
Dividends obtained from a mutual fund is tax-free in the hands of the investors. However, the fund house pays a dividend distribution tax (DDT) of 29.12% on debt funds. This is inclusive of surcharge and cess. On the other hand, in an equity mutual fund, there is no dividend distribution tax. For investors who are looking to have intermittent cash flow through moderate-risk investments, dividend equity funds could be the best bet. Also, there is no DDT on equities.
Investors can opt for growth or dividend option based on their investment goals. So, people who wish to grow wealth over the long term, usually opt for growth option – this is because the compounding benefit is lost when he AMC pays you dividends.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- GST Regis.
- Inventory of finished goods
- Clarification on Documentation of Paid-Up Capital Contribution by Directors
- Tds on building rent monthly
- Confusion around Form 26QB fields
- REGARDING 25 AS DATE OF PAYMENT AND DATE OF BOOKING
- Sale of property furniture sale
- Applicability of Ind As to associate of associate
- RCM INVOICING FROM NOV-2024
- Disallowance of Section 43B(h) to sez units
- GST input booked in relevent expenses
- TDs rate on event Management
- Insurance of new scooty , should be capitalised
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
Trending Online Classes
CAclubindia
