Dividend Yield Mutual Funds

Are you looking for a mutual fund that invests in companies having a good history of paying dividends? Dividend Yield Mutual Funds can be the right bet. These mutual funds are ideal for those investors who want to build long-term wealth while investing in the companies paying a share of profit in the form of dividends. These mutual funds invest in strong companies, which have the ability to provide steady returns over a period of time.

What are Dividend Yield Mutual Funds?

Dividend Yield Mutual Funds are the type of equity mutual funds, which invest majorly in companies that offer a high dividend yield. Dividend yield refers to the annual dividend payment by a company in relation to its stock price. The fund managers select companies that have strong financial standing, profitability, and pay dividends. The companies typically operate in established industries with steady revenue flows.

It should be noted that the dividends paid by the companies go into the mutual fund portfolio. The investors of the mutual fund do not get dividends from the companies but benefit from the overall performance of the mutual fund.

Features of Dividend Yield Mutual Funds

• Focuses on Dividend-Paying Stocks: These mutual funds mainly focus on those companies which have higher dividend yields and pay regular dividends consistently.
• Minimum 65% Equity Investment: These types of funds, according to SEBI guidelines, will always allocate at least 65% of their investments in equity and equity-linked instruments.
• Active Management: Fund manager actively manages the stock portfolio and selects the companies having a rich dividend history.

Investments in Various Sectors: Investments made in various sectors in order to diversify the investment portfolio.

• Market-Linked Returns: The performance of the fund depends on the movement of the stock market and the performance of the underlying companies.

How to Invest in Dividend Yield Mutual Funds?

You can invest in dividend yield mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable dividend yield mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Dividend Yield Mutual Funds?

• Capital Appreciation Potential for Future: Investing in fundamentally sound companies would be able to ensure capital appreciation in the future.
• Quality Stocks Exposure: These schemes typically invest in companies that are good enough to generate good earnings and cash flow.
• Less Volatile Than Some Equities: Companies with consistent dividend records are often more mature and financially stable, which may help reduce portfolio volatility during market fluctuations..
• Easy to Invest: You can start investing with a lump sum or through a Systematic Investment Plan (SIP), making it convenient to invest according to your financial goals.

Taxation Rules for Dividend Yield Mutual Funds

Dividend yield mutual funds fall into the equity mutual funds category and are taxed like other equity mutual funds.

• Short-Term Capital Gains (STCG): If units are sold within 12 months from the date of purchase, the profits will be considered STCG, which shall be taxed at 20%, with applicable surcharge and cess.
• Long-Term Capital Gains (LTCG): Profits made from selling units after 12 months will be considered LTCG. Profits made from dividend yield funds beyond ₹1.25 lakh in a fiscal year will be taxed at 12.5%, whereas LTCG up to ₹1.25 lakh is tax-exempt.
• Dividend Income: In case where a mutual fund pays dividend under an eligible option, the dividend received by the investor will be taxable under the relevant income tax provisions.