The
key benefit of investing via the mutual fund (MF) dividend option is that it
can provide as a source of income which can help in planning expenses better.
Additionally, there is the incoem tax efficiency of returns.
The
dividend option is beneficial for short-term debt fund investments, especially
if you are in the highest income tax bracket.
Furthermore,
if you have invested in a fixed tenure fund such as an ELSS (Equity Linked
Savings Scheme -income tax saving funds with lock-in 3 years) or FMP (Fixed
Maturity Plan), the dividend option allows you to gain access to a portion of
income of your funds in the absence of a redemption option.
Furthermore,
dividends to some extent shield investors from a decline in markets in the
future, as a dividend would tantamount to locking in part of the gains made by
the fund.
On
the flipside, constant stream of dividends may mean that investors forego the
benefits of compounding. Therefore, too many and too few dividends may both be
undesirable, and like investors should not place too much emphasis on the
amount of dividends in making an investment choice.
However,
MF/ Share investor’s income inflow takes precedence here.
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