Dividend mutual funds refer to stock mutual funds that chiefly invest in organisations that offer dividends. Dividends refer to profits or revenues that are earned by companies and which are shared with the shareholders of the company. The profits are nothing but the yield that mutual funds get by selling the shares at prices higher than what it was purchased for. Depending on the scheme, the fund manager can either declare a dividend or use the profits to purchase stocks.
When you invest in a debt mutual fund, you will be able to enjoy predictable returns. On the other hand, when you invest in an equity-linked fund, your returns will be very volatile in nature. However, when you choose an equity-linked fund that offers dividends, you can enjoy maximum profitability which will result in excellent growth for your funds.
How Do Dividend-Paying Mutual Funds Work?
Dividend-paying mutual funds provide investors with annualised payouts. These payouts will be made on a regular basis and hence, as an investor, you will feel safe and secure with these funds. These dividends will be paid from the revenues earned by the fund during the previous year.
Mutual Funds (MF) with a dividend option do not show a high growth in their Net Asset Value (NAV) because the dividends are paid out on reaching a specific level almost immediately. Fund houses are required to pay 28.84% as a Dividend Distribution Tax (DDT) in the case of debt funds and this is inclusive of cess and surcharge. Equity mutual funds, on the other hand, do not attract a DDT.
Dividend mutual funds are ideal for investors who do not have an appetite for risk and who wish to receive regular payouts as a source of income.
Best Dividend-Paying Mutual Funds
- Franklin India Opportunities Fund (D) - This fund is operated by Franklin Templeton MF and since its launch, the fund has offered 11.44% returns on investment.
- Aditya Birla Sun Life Frontline Equity Fund (D) - Run by Aditya Birla Sun Life MF, this fund is an open-ended scheme and since launch has offered 21.48% returns.
- BNP Paribas Dividend Yield Fund – Growth - This fund is now called as BNP Paribas Multi Cap Fund and its benchmark index is NIFTY 200 TRI.
- Aditya Birla Sun Life Dividend Yield Plus – Growth - With assets worth Rs.992 crore, this plan has a good dividend payment history.
- ICICI Prudential Dividend Yield Equity Fund – Growth - The fund house operating this fund is ICICI Prudential MF and has offered 14.59% returns since launch.
- Principal Dividend Yield Fund – Growth - Operated by Principal MF, this fund has offered returns of 12.93%.
- L&T Emerging Businesses Fund - Direct Plan (D) - With assets worth Rs.5,001 crore, the fund has offered returns of 28.87%.
- UTI Dividend Yield Fund – Growth - This fund has showed returns of 15.12% since its launch and manages assets worth Rs.2,678 crore.
- HSBC Dividend Yield Equity Fund - This fund has now been merged with the HSBC Multi-Cap Equity Fund and aims to generate capital appreciation and dividend yield. It mainly invests in equities and equity-related stocks of domestic Indian firms.
- Kotak Select Focus Fund - Direct Plan (D) - The fund is managed by Kotak Mahindra MF and holds assets worth Rs.19,228 crore.
- Axis Mid Cap Fund - Direct Plan (D) - This fund has offered returns of 19.90% since its launch and manages assets worth Rs.1,417 crore.
- UTI Mastershare (D) - This is a large cap equity fund and has assets worth Rs.5,156 crore.
- Invesco India Growth Fund - Direct Plan (D) - This fund holds assets worth Rs.484 crore and has offered returns of 18.85%.
- Canara Robeco F.O.R.C.E Fund - Regular Plan (D) - It is an equity fund with assets worth Rs.226 crore and has offered returns of 16.21% since its launch.
Union Small and Mid Cap Fund - Regular Plan (D) - This fund has fetched returns of 11.83% since its launch and manages assets worth Rs.339 crore.
Disclaimer: Mutual Fund investments will be subject to market risks. Any mutual fund listed in the article does not guarantee fund performance or its underlying creditworthiness. We have created the list given above by taking only one factor into consideration, which is the payment of dividends. These above-mentioned funds will most likely offer excellent returns according to the dividends earned by the fund. These results can vary with time.