Best Dividend Paying Mutual Funds

A dividend paying mutual fund is a mutual fund that invests in stocks that pay dividends. When a company makes profits, the company management may decide to pay a portion of the profits to the shareholders, which is called dividend. The dividends are paid to the mutual funds. The mutual fund investor may then either reinvest the dividend back into mutual fund to buymore shares of the same company or the dividend may be distributed to the investor. Dividend paying mutual funds are attractive to investors who need a consistent income from their investment.The investor can get the maximum appreciation of the capital with this type of fund.The fund managers will identify and invest in stocks of companies that pay largedividends.

A dividend paying mutual fund is an ideal option for investors who are looking to have a regular source of income, for those investors who would prefer a low risk mutual funds portfolio, and it also becomes an easy investment decision for a less experienced or first time investor.

Types of dividend paying mutual funds

As per the SEBI guidelines, in a dividend paying mutual fund at least 65% of the fund must be invested in a dividend yielding financial instrument.So based on the type of asset distribution there are two types of dividend paying mutual funds, debt funds and equity funds.

In an equity based dividend paying mutual fund, the financial institution will invest 65% or more of the funds in equity or related instruments.Such equity based dividend paying mutual funds are a mid to long term investment goal. In a debt based dividend paying mutual fund, the financial institution will investprimarily in debt or debt instruments such as government or corporate bonds, debentures, etc. The debt based dividend paying mutual funds are less risky than equity funds as well as offer tax saving benefits.

Best of Dividend Paying Mutual Funds in India

There are a number of dividend paying mutual funds from different financial houses to choose from each with different portfolios. We at Nuuu have identified the top dividend paying mutual funds for you and have listed out the top five below.

  1. Franklin India Opportunities Fund
  2. BNP Paribas Dividend Yield Fund
  3. IDBI Dividend?

Advantages and Disadvantages of Dividend Paying Mutual Funds

Any investment including mutual funds comes with their own set of advantages and disadvantages. It is about choosing the one that suits you the most. Dividend paying mutual funds are considered to be among the of mutual funds schemes. But that too has its own set of advantages and disadvantages.

Advantages: The following are the main advantages of a dividend paying mutual fund.

  • Regular Income: Dividend paying mutual funds often has shares of companies that have a long history of paying dividends and so these mutual funds offer a regular source of income to the investor. 
  • Low Risk: Dividend paying mutual funds has shares of companies that are really well-established in the sector. These mutual funds are not affected by market volatility since the stocks tend to remain steady even in a bearish market.
  • High Yield: Dividend yield funds have the potential of returning high returns in the long run. The dividends can be reinvested into the fund to buy more shares of the same companies thereby increasing the dividend yield.

Disadvantage: The following is the main disadvantage of a dividend paying mutual fund.

Risk of Underperformance: Dividend yield funds may underperform in a bullish market where growth funds perform really well. Since the underlying companies are well established and pay dividends, it could also mean that there is no significant growth opportunity. Hence these shares tend to underperform in a highly bullish market.

Points of Note:

  • Equity based dividend yield funds generally pays the higher dividends. But they have more risk associated with them than debt based dividend yield funds. You might contact the investment advisor at Nuuu and we will help you select the right mutual funds.
  • Dividend yield funds are a good idea. If you are looking for a regular income with very low risk factor, dividend yield fund mutual fund is the way to go. We can help you identify the best dividend yield fund for you. You can contact us over phone, email, or chat.
  • You can now invest in a dividend paying mutual fund through our web site, www.nuuu.in. Please visit our website. If you have difficulty choosing the right fund, we can help you. We are available on chat in the website.