How to buy dividend plans for a mutual fund? 

Mutual funds are a way to invest money where many people pool their savings, and experts manage them to grow. There are different types of mutual funds, like dividend plans and growth plans. In this article, let's understand dividend plans in mutual funds and the ways to invest.

What Are Dividend Plans in Mutual Funds?

A dividend plan in a mutual fund is like getting a small share of the profits from time to time. Imagine you put money in a fruit shop, and whenever it makes money, it gives you some cash as your share. That’s what a dividend plan does. It pays you a part of the fund’s earnings (called dividends) regularly, like every month, quarter, or year.

In contrast, a growth plan doesn’t give you cash payments. Instead, it keeps all the profits in the fund, so your investment grows bigger over time, like letting the fruit shop reinvest all its earnings to expand.

Example:

• Dividend Plan: You invest ₹10,000 every year; the fund gives you ₹500 as a dividend (if it makes profits).
• Growth Plan: The same ₹10,000 stays invested; after a year, it might grow to ₹11,000 (no cash is given to you).

Dividend plans suit people who regularly want extra cash, while growth plans are for those who want their money to grow without taking anything out.

Do Mutual Funds Offer Dividend Plans?

Yes, many mutual funds offer dividend plans. Not all funds have them, but you can find dividend plans in different types of mutual funds, like equity funds (investing in stocks), debt funds (investing in bonds), or hybrid funds (a mix of both). When choosing a mutual fund, check if it has a dividend and growth options.

How and Where to Buy a Dividend Mutual Funds?

Buying a dividend mutual fund is easy, and you can do it in two ways: online or offline. Let’s break it down:

Online Platforms

You can invest using your phone, computer, or tablet through:

• AMC Websites or Apps: An AMC is an Asset Management Company, like SBI Mutual Fund or HDFC Mutual Fund. Visit their website or download their app, sign up, and choose a dividend plan.
• Investment Apps: Apps like Black by Cleartax let you buy direct mutual funds easily.
• Banks or Brokers: Many banks (like ICICI or Axis) and brokers have apps or websites for mutual fund investments.

Offline Methods

If you don’t want to use the online method, you can follow the steps below to invest in offline methods.

• Visit the AMC office or a bank branch and fill out a form to invest.
• Contact a mutual fund agent(distributor) to help you choose and buy a fund.
• Submit your documents (KYC documents) and a cheque.

Regular vs. Direct Plans

When buying, you’ll see two options:

• Regular Plan: You buy through an agent or broker, who charges a small fee. Your returns are slightly lower than those of direct.
• Direct Plan: You buy directly from the AMC (no agent), so there’s no extra fee, and you might earn a bit more than regular funds.

Where to Buy Dividend Paying Mutual Funds? 

You can buy dividend mutual funds from AMCs, banks, brokers, or the above apps. There is no need to go to multiple places; just pick one that’s easy for you!

Steps to Invest in Dividend Mutual Funds

Step 1: Complete KYC

KYC means “Know Your Customer.” It’s a one-time process to verify who you are.

• Submit your Aadhaar card, PAN card, and a photo.
• You can do this online (through apps) or offline (at an AMC office or bank).
• Once KYC is done, you can invest in any mutual fund.

Step 2: Choose the Right Fund

• Look for a mutual fund with a dividend option. Check if it’s an equity, debt, or hybrid fund based on your needs.
• Ask yourself: Do I want monthly, quarterly, or yearly dividends?
• If unsure, talk to a friend who invests or a trusted agent.

Step 3: Make Payment

• You can pay through:
  • Online: Net banking, UPI, or debit card.
  • Offline: Cheque or demand draft.
• Start with a small amount (some funds allow as low as ₹500) or invest a lump sum.

Step 4: Monitor and Track

• After investing, check the performance of your fund. You can use the AMC app or website to see your dividends and fund value.
• Dividends will come to your bank account or as a cheque, depending on the fund.

Features of Dividend Mutual Funds

Here’s what makes dividend mutual funds special:

• Payout Frequency: You might get dividends monthly, quarterly, or yearly, depending on the fund.
• NAV Impact: NAV (Net Asset Value) is like the price of one unit of your fund. When a dividend is paid, the NAV drops a little because some money is taken out to pay you.
• Who They Suit: Dividend plans are great for:
  • Retired people who want extra cash regularly.
  • Anyone who wants some income without selling their investment.
• Not Guaranteed: Dividends depend on the fund’s profits. If the fund doesn’t make money, you may not get dividends.

Example: if you invest ₹10,000 in a fund with a dividend plan, you might get ₹200 every quarter if the fund does well. But if the market is terrible, the fund may skip the dividend.

Taxation Rules for Dividend Mutual Funds in India

Dividends from mutual funds are taxed simply:

• Since 2020, the government removed DDT (Dividend Distribution Tax). Now, dividends are added to your income and taxed based on your income tax slab.
• If you sell your mutual fund units later, you may also pay capital gains tax (tax on profits), but that’s separate from dividends.

Always keep track of dividends for your tax returns. If unsure, ask a tax expert like Cleartax to calculate your tax.

Pros and Cons of Dividend Mutual Funds

Pros

• Regular Cash: You get money regularly, which is great for expenses like bills or small needs.
• No Need to Sell: You don’t have to sell your investment to get cash.
• Flexible: You can choose funds with different payout timings (monthly, yearly, etc.).

Cons

• Lower Growth: Since dividends are paid out, your fund doesn’t grow as much as a growth plan.
• Not Fixed: Dividends aren’t guaranteed; you get nothing if the fund doesn’t make profits.
• Tax: Dividends are taxed at your income tax slabs, which reduces your income and can increase your slab rates.

Conclusion

Dividend plans in mutual funds are a good choice if you want some extra cash from your investment without selling it. They’re simple to buy online through apps or offline through banks and suit people like retirees or those who need regular income. But remember, dividends aren’t promised, and they’re taxed.

A growth plan might be better if you want your money to grow over time. Before investing, check the fund’s dividend history, talk to someone you trust, and start small. With a bit of care, dividend mutual funds can be a helpful way to make your money work for you.