Best Dividend Paying Mutual Funds

Dividend mutual funds are generally for those investors who require a regular flow of income for their investment in mutual funds. Dividend mutual funds are ideal for post-retirement when the salary/income from the professional service or business ceases. In addition to this, dividend mutual fund is one of the safest types of mutual fund option available in the market. They make for a better choice than the regular bank fixed deposits whose interest rates are on a decline year after year. There are plenty of options available in the market with regards to various types of dividend mutual funds. In order to select the best dividend paying mutual fund, you will need to carry out some research on your own. If you don’t have time or don’t want to put in the effort of researching for best dividend paying mutual funds, then this article will serve as a ready-reckoner.

Before dividing straight into best dividend paying mutual funds, let’s go through some basics of dividend paying mutual fund.

What does one mean by dividend in a mutual fund?

A mutual fund scheme, be it debt, hybrid or equity, can declare dividends to the unitholders on account of realised profits from the mutual fund scheme. The meaning of realised profit is the gains or profit made from selling a financial instrument on premium price i.e. price greater than the purchase price. The difference between the selling price and purchase price minus any charges are considered as actual gains from a financial instrument. Realised profits can also be defined as the profits made through dividend received (in case of debt funds) held by the mutual fund scheme.  SEBI (Securities Exchange Board of India), which is the controller of the mutual funds in India, states that a dividend cannot be declared by the mutual fund house on unrealised profits. Unrealised profits are credited to the NAV (Net Asset Value) of the mutual fund scheme.

What is the frequency of dividend payout in a mutual fund?

There is no certainty of the frequency of dividend payment in mutual fund scheme. A dividend can be paid out on a daily, monthly, quarterly or yearly basis. The dividend payout varies from one mutual scheme to another. Although every dividend paying mutual fund scheme does endeavour to payout the dividend on regular basis to the investor, the dividend amount and period are not fixed. It completely depends upon the market performance of the mutual fund scheme.

What is the tax liability on mutual fund dividends?

There is no tax liability in the hands of the investor for dividend receipt. However, the mutual fund house has to pay a dividend distribution tax of 28.84% (includes surcharge and cess). There is no distribution tax payable by the mutual fund house in case of equity mutual funds.

Which type of investor should go for dividend option?

The investors who require regular cash flow from the investment can go for dividend mutual funds. If the objective is wealth accumulation over long-term, then growth option will be more ideal than dividend option. The reason being that the compounding option is lost when dividends are paid out, except if the dividend amount is invested back immediately. Investors who fall in the higher tax bracket could opt for dividend option in liquid/short-term funds for a period less than 3 years as dividend distribution tax is lower than 2 percent of 29.84% when compared to individual tax slab rate of 30.9%.

Some of the current best type of mutual funds in dividing paying category -

S.No	Mutual Fund Scheme	Fund Category	NAV (31st, August 2018)	Latest Dividend date	Dividend (INR/Unit)	Dividend Yield      (3 yrs)
1	DSP BlackRock Equity Opportunities Fund – Direct – Dividend	Large and Mid Cap Fund	56.22	06-01-2017	4.5	9.61%
2	Canara Robeco Emerging Equities – Direct – Dividend	Large and Mid Cap Fund	67.9	24-11-2017	3	4.82%
3	Principal Emerging Bluechip Fund – Direct – Dividend	Large and Mid Cap Fund	90.4	15-12-2017	5.92	18.34%
4	L&T Midcap Fund – Direct – Dividend	Mid Cap Fund	48.9	17-08-2018	3.54	5.06%
5	Sundaram Large and Mid Cap Fund – Direct – Dividend	Large and Mid Cap Fund	237.3	01-01-2018	3.3	8.95%
6	SBI Smallcap Fund – Direct – Dividend	Small Cap Fund	41	09-03-2018	9.1	9.08%
7	Reliance Small Cap Fund – Direct – Dividend	Small Cap Fund	34.4	08-02-2018	3	4.36%
8	Kotak Standard Multi Cap Fund – Direct – Dividend	Multi Cap Fund	25	20-03-2018	2	4.91%
9	HDFC Small Cap Fund – Direct – Dividend	Small Cap Fund	31.4	22-03-2018	2.75	8.25%
10	Aditya Birla Sun Life Small Cap Fund – Regular – Dividend	Small Cap Fund	23.6	30-08-2018	1.31	6.30%
11	UTI Equity Fund – Direct – Dividend	Multi Cap Fund	111.9	23-08-2018	2.92	2.54%
12	Mirae Asset India Equity Fund – Direct – Dividend	Multi Cap Fund	37.6	12-03-2018	2	11.01%
13	SBI Magnum Multi Cap Fund – Direct – Dividend	Multi Cap Fund	26	09-03-2018	2.2	13.80%
14	Aditya Birla Sun Life Equity Fund – Direct – Dividend	Multi Cap Fund	139.5	09-03-2018	0.8	8.43%
15	Motilal Oswal Long Term Equity Fund – Direct – Dividend	ELSS	17.4	20-03-2018	0.1	10.14%
16	Invesco India Tax Plan – Direct – Dividend	ELSS	23.7	12-01-2018	2.2	9.41%
17	HDFC Equity Savings Fund – Direct – Dividend	Equity Savings Fund	12.2	25-06-2018	0.22	5.74%
18	Indiabulls Arbitrage Fund – Direct – Dividend	Arbitrage Fund	10.5	21-06-2018	0.05	5.75%
19	Reliance Arbitrage Fund – Direct – Dividend	Arbitrage Fund	10.9	28-08-2018	0.04	5.58%
20	SBI Equity Savings Fund – Direct – Monthly Dividend	Equity Savings Fund	12.4	31-08-2018	0.04	4.96%

Today, many investors are going for dividend mutual funds as the dividend from the mutual fund takes care of expenses.  Dividend mutual funds are ideal for investors who are looking for regular returns from their investment and want to avoid taking much risk in their investment. Having said this, there are a lot of parameters which the investor needs to consider before finalising on a mutual fund scheme. One of the most important things is that the mutual fund scheme should be aligned with your financial objectives and goals. One thing which is absolutely clear in a mutual fund is that you need to keep your investment for a long term in order to maximise the potential gains from any mutual fund scheme. Hence, do your research and select the best type of mutual fund scheme which will help you get you returns on your mutual fund investment as per your expectations.