How do dividend plans in mutual funds function?
Dividend plans in mutual funds are designed to provide investors with periodic cash payouts from the earnings or surplus generated by the fund. These distributions, known as dividends or IDCW (Income Distribution cum Capital Withdrawal), are credited directly to the investor's registered bank account.
Unlike growth or reinvestment plans, the profits in a dividend plan are not reinvested back into the fund. This makes them ideal for investors who prefer regular income from their investments.
Key features of dividend plans
- Provide periodic income based on fund performance and surplus
- Dividend amounts and frequency are not fixed or guaranteed
- NAV reduces post-dividend payout
- Suitable for investors seeking cash flow from their holdings
What if...
| Scenario | Explanation |
|---|
| You want steady income | Dividend plans offer cash payouts whenever the fund declares a dividend. |
| You expect consistent payouts | Payouts depend on fund performance and are not guaranteed. |
| You want capital growth | Reinvestment or growth options are more suited for long-term compounding. |
| You’re retired or need regular funds | These plans can support periodic cash needs if the fund performs well. |
Dividend plans are best suited for income-seeking investors who prefer cash distributions over long-term compounding. Check the fund’s dividend history before investing.
Last updated: 16 Jun 2025
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