Mutual funds can declare dividends at their discretion. These dividends are paid from the profit the scheme makes from selling securities or income from the scheme. This dividend can be reinvested back into the scheme or received when it is declared by investors. Investors can also opt not to receive any dividend and continue to reinvest in the scheme.
If you are a market investor or have at least been following the market, then you should be familiar with dividends paid by stocks. Mutual funds pay dividends just like stocks pay dividends, bonds pay coupon or interest, and mutual funds also pay dividends to investors if they choose. Mutual funds, as you may know, are a type of pooled investment vehicle. They invest investor money in various assets such as equities and debt. Investors also get risk diversification. The underlying assets of a mutual fund are the securities in which it invests the money it receives from investors. A mutual funds scheme can make a profit by investing in securities and managing them. The fund manager may decide to distribute this profit among its investors. This is known as a dividend when the fund manager decides that such profits should be distributed among investors.
Mutual fund dividends refer to the distribution of mutual fund earnings. When a mutual fund scheme sells securities, it distributes dividends. According to SEBI rules, a mutual fund scheme can declare dividends only if it earns from the sale or current income from securities held in its portfolio. A mutual fund scheme does not involve the investment of investor money in securities such as stocks or bonds. The scheme will pass on any dividends or interest it earns to the investor at the manager’s discretion.
You may be wondering what happens if the fund manager decides to not pass on the income or dividends from the scheme portfolio to investors. The fund manager makes the decision on how to distribute the dividends from the scheme’s profits based on market conditions and other economic factors. A fund manager might decide to purchase more securities with the profits from the scheme than distribute them to investors. In such cases, investors benefit as the increased NAV of the fund’s portfolio means that the manager can buy more securities. While you might not receive the dividend, the net asset value or NAV of your mutual fund will increase. All mutual fund schemes have the option of paying dividends to investors if they feel it is more appropriate than investing the earnings back in the scheme.
Only investors who have chosen to receive dividends from a fund are eligible for them. Those who choose dividend reinvest options don’t get any. The fund will reinvested the dividend amount on behalf of these investors into the scheme. These Dividend Reinvest investors buy more units of the fund with the declared dividend amount rather than receive the dividend amount. Other investors are more interested the capital appreciation of their money than the dividend option. They have the option to choose Growth option. In this case, they do not receive any dividends. Instead, the dividends that are declared for dividend option investors are reinvested back into the scheme. This investor experiences an increase in their NAV compared to Dividend Reinvest investors, who see an increase in the number. number of units in their account.