With Peerless Mutual fund declaring dividend on three of its debt funds, today, investors in three schemes -- Peerless Ultra Short Term Fund, Peerless Income Plus Fund and Peerless Liquid Fund -- would have got some additional income. Others such as, SBI, Axis, IDFC, UTI and some other fund houses have also declared dividends on their schemes.
Peerless mutual fund declared dividend under the monthly dividend option for 'Retail and Super Institutional Plan' for the unit-holders of Peerless ultra short term and liquid fund. The record date for dividends was September 28, 2012.
Akshay Gupta, managing director and chief executive officer at Peerless Funds Management Company Ltd. says, “These funds aim to provide regular returns in the form of dividend to investors seeking a steady income and we are glad to successfully meet this objective with regular dividend declaration.”
Although many fund houses declare dividends, its important you know which option to choose before investing there. The returns generated from both options are almost the same. But in the dividend payout you lose, on compounding returns as the dividends received are not re-invested either by the scheme. “An investor whose investment horizon is less than a year only should opt for a dividend option. Whereas, if one wants to stay invested for more than a year, he should opt for a growth option as the capital gains tax is lower there," says Dhirendra Kumar CEO, Value Research.
Hence, only those looking for a regular income should pitch for the dividend option. Typically, retired people who are looking for additional income should opt for this. The dividend declared would be tax-free at the hands of the unit holders. Dividend distribution tax is paid by the fund house at 14%.
One should know the dividends declared are not guaranteed and the fund house is not under any obligation to announce a dividend. Also, the amount and the regularity of the dividends can vary.
However, under the growth option the gains are reinvested over and over again and the returns are compounded, resulting in higher proceed, at the time of maturity. Hence, this works best for those who want to create wealth or have a goal to fulfill over a longer period of time.
