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Prevailing by laws mandates taxpayers to pay advance tax applicable on dividend income post declaration or payment of a dividend. Some mutual fund investor aims at generating income in the form of dividends at regular interval, and they can choose #DividendMutualFund. But, the dividends’ payment is not guaranteed in mutual funds.

A dividend mutual fund essentially invests in organizations that pay dividends. Such dividends are considered as profits that the organization’s shares with shareholders. The profits are generated by selling out the stock at the price greater than purchased value.

The asset management company, aka AMC adds such profits to the NAV i.e. Net Asset Value. But, AMCs are not permitted to consider unrealized profits from the instrument for dividend payments.

Oftentimes, they reveal a part of unrealized gains as dividends, & such decision bestow with the manager administering funds. The asset manager can also send the money back to debt instruments or buy stocks as per the scheme.

When Dividends are paid to Investors?

The AMC can opt to pay #dividends on a daily, monthly, quarterly, or yearly basis. This typically differs scheme-wise. Even though majority of dividend mutual funds aim to pay dividends and adhere to their respective mandate, it is never assured.

The dividend amount could vary significantly. An #investor must also comprehend that under the dividend option, the NAV is not permitted to increase higher than a standard value. Once the Net Asset Value reaches to a critical value, the fund house disburses the dividend related payments.

the Tax slab rates that are Applicable to Dividend-based Payments

Dividends generated from a #MutualFund were non-taxable in the hands of investors until March 31st 2020. It is due to the fact that the company declaring dividends paid DDT before paying the dividends. But, the Finance Act, 2020 got rid of such provisions and changed the method relating to the dividend taxation.

All dividends secured on or after Apr 1st, 2020 shall be taxable in the hands of the investor as the Dividend Deduction Tax on dividend were withdrawn.
The Finance Act, 2020 also applies a Tax deduction at Source i.e. TDS on dividend distribution by Mutual funds on or after Apr 1st, 2020. The slab rate of TDS is 10 per cent on dividend income paid out in excess of Rs 5,000 from an entity or mutual fund.

But, as a Cornorvirus relief measure, the GOI slashed down the TDS rate to 7.5 per cent for distribution from May 14, 2020 until March 31st, 2021.

The Conditions relating to the submission of Form 15G/15H

Indian national receiving dividends whose annual income is below the exemption threshold can furnish from 15G to the company or mutual fund paying the dividend.

Likewise, an aged individual whose annual tax payable is nil can furnish form 15H to the dividend paying company. The mutual fund confirms that the shareholder about the dividend declaration on their respective email address and seeks submission of form 15G or form 15H to claim dividend with TDS.

Based on their investment goals, investor can choose growth or dividend option. Therefore, people aiming for wealth creation over the long term, generally prefer to goes with growth option. This is because the compounding benefit ceases to exist when AMC pays out the dividends.
What are the key difference between Growth Mutual funds and Dividend Mutual Funds?

Mutual funds facilitate two type of options i.e. growth and dividend. There are less clarity among the investors about these options. In the debate of dividend mutual fund vs growth mutual fund, some think that dividend option is better where other thinks that, growth option is better.

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