An Insight on Dividend Yield Funds

Many investors are not aware of the different types of investment products available in the market. Apart from the basic mutual funds, investors do not have the knowledge of different funds that are ideal for generating a stable income. One such fund is a dividend yield fund.

What is a dividend yield fund?

A dividend yield fund is a fund that invests the majority of the amount into high dividend yield stocks. As the name suggests, the fund generates higher returns in the form of dividends that are paid by the company.

However, it is important to keep in mind that the entire amount is not invested in dividend-paying stocks; it is also invested in stocks that show the potential to grow.

Why should you invest?

Investors should invest in dividend yield funds because they help generate regular income from the investment. They are less risky as compared to other growth-oriented funds and generate a steady income, which can be used to purchase additional shares of the same mutual funds.

Who should invest?

Dividend yield funds are ideal for retired investors or for investors who are looking to generate an alternative source of income. If you have the funds but are not willing to take on many risks, you can invest in this fund.

Is there any tax liability?

The fund invests into equity stocks of companies, which means the capital gain will be taxable. There will be a 15% tax on the short-term capital gain and 10% on the long-term capital gain on an amount exceeding INR 1 lakh in a financial year.

Secondly, there will be a 10% dividend distribution tax charged on the dividend distributed by the mutual fund. The tax will be deducted before it is credited to your account in the form of dividend and is paid by the mutual fund company.

Things to consider while investing

There are various things you need to consider while investing in the fund. Your risk appetite and investment horizon are the two main factors.

If you have a low-risk appetite and are only looking to generate additional income through the investment, this is the best choice. However, you also need to keep in mind that you will not be able to enjoy the appreciation of the fund with regard to value since the fund will only invest into stocks that are high in terms of dividend payouts.

If you remain invested for a long period, you will be able to enjoy a higher income in the form of regular dividends.

How should you select a dividend fund?

You need to be very careful when selecting a dividend yield fund. Consider the performance of the fund over the past five to ten years and compare the returns generated by the same.

Make a comparison of the dividends paid over the years and then choose the fund. Make the right choice by conducting a thorough market research and analysis of the available funds.

What are the best dividend yield funds?

We have listed down few of the best dividend yield funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• UTI Dividend Yield Fund Growth
• Franklin India Equity Income Fund Growth
• Aditya Birla Sun Life Dividend Yield Fund Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Chasing High Returns:

Best way first-time investors start their investment planning is by sorting the top mutual fund schemes in the order of higher returns. You have to do your research to understand how different mutual funds schemes work and not just select a scheme based on their past performance.

Fear of Missing Out:

Never invest in schemes on a notion of “others are investing” or just because “market is Up”. Before taking any decision you have to do research, lay down your investment plan and understand the best possible schemes that will help you achieve your goals and help you grow your investments.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

Why FundsInn?

FundsInn is an online investment platform. Individuals can manage and make investments in Mutual Funds, Corporate Fixed Deposits, Bonds through our platform at Zero processing fee.

FundsInn is AMFI certified company that offers various services including Financial planning and Assets management. We recommend a personalised investment portfolio keeping your financial goals and investments in mind.

Our financial advisors understand your current financial status and suggest a financial plan that suits your needs. You can initiate different types of transactions including Lump sum investment, SIPs (Systematic Investment Plans), in various schemes available on our portal.

If you are looking for guidance then get in touch with our financial advisor and get started today.