Last Updated on Jul 26, 2024 by Anjali Chourasiya
Are you looking for a reliable source of income from your investments? Dividend mutual funds might be the perfect option for you. These funds are designed to distribute a portion of their earnings to investors at regular intervals. By choosing the best dividend-paying mutual funds, you can enjoy the dual benefits of potential capital growth and regular income. In this article, let’s explore the best dividend mutual funds in India, benefits, disadvantages, taxation on dividend mutual funds, how to invest in them, difference between growth and dividend mutual funds, and more.
Table of Contents
Best Dividend Mutual Funds in India – July 2024
| Name | AUM (Rs. in cr.) | Expense Ratio (%) | Absolute Returns – 1Y (%) | CAGR 3Y (%) |
| LIC MF Dividend Yield Fund | 189.29 | 1.45 | 59.72 | 26.14 |
| ICICI Pru Dividend Yield Equity Fund | 4,256.91 | 0.54 | 55.24 | 31.33 |
| Aditya Birla SL Dividend Yield Fund | 1,366.05 | 1.42 | 53.30 | 25.59 |
| Templeton India Equity Income Fund | 2,325.52 | 1.25 | 51.95 | 25.80 |
| UTI Dividend Yield Fund | 4,071.32 | 1.39 | 51.36 | 22.03 |
| HDFC Dividend Yield Fund | 5,617.54 | 0.56 | 47.00 | 28.24 |
| Sundaram Dividend Yield Fund | 923.54 | 0.97 | 44.88 | 21.51 |
| Tata Dividend Yield Fund | 998.06 | 0.47 | 41.35 | 22.47 |
| SBI Dividend Yield Fund | 7,629.65 | 0.73 | 38.83 | 0.00 |
Note: The data is dated 25th July 2024. The following parameters are used on Tickertape Mutual Fund Screener to get the list of the best dividend-paying mutual funds:
You can add multiple parameters or create custom filters to analyse the mutual funds.
🚀 Pro Tip: Use Tickertape’s Mutual Fund Screener to filter and compare funds based on performance, expense ratio, and risk. Find funds that match your goals and risk tolerance for smarter investment choices.
Overview of the Dividend Yield Stocks
LIC MF Dividend Yield Fund
The LIC MF Dividend Yield Fund, managed by LIC Mutual Fund, aims to provide consistent returns by primarily investing in high dividend-yielding companies. Founded in 1989, LIC Mutual Fund is one of India’s oldest and most trusted asset management companies. The fund focuses on stocks that not only offer high dividend yields but also demonstrate stability and growth potential.
As of the 25th July 2024, the LIC MF Dividend Yield Fund has an Asset Under Management (AUM) of Rs. 189.29 cr., an expense ratio of 1.45%, and has delivered absolute returns of 59.72% over the past year, with a Compounded Annual Growth Rate (CAGR) of 26.14% over the past three years.
ICICI Pru Dividend Yield Equity Fund
The ICICI Pru Dividend Yield Equity Fund, managed by ICICI Prudential Mutual Fund, is one of the largest funds in its category. Established in 1993, ICICI Prudential is renowned for its strong research capabilities and robust fund management practices. The fund focuses on companies with high dividend yields to achieve both capital appreciation and regular income distribution. It has an AUM of Rs. 4,256.91 cr., and an expense ratio of 0.54%. The fund has provided absolute returns of 55.24% over the past year and a CAGR of 31.33% over the past three years.
Aditya Birla SL Dividend Yield Fund
Managed by Aditya Birla Sun Life Mutual Fund, the Aditya Birla SL Dividend Yield Fund focuses on investing in companies with a strong history of dividend payouts. Aditya Birla Sun Life Mutual Fund, a joint venture between the Aditya Birla Group and Sun Life Financial Inc. of Canada, is known for its robust fund management and research capabilities. The fund has an AUM of Rs. 1,366.05 cr., and an expense ratio of 1.42%. Over the past year, it has delivered absolute returns of 53.30%, with a CAGR of 25.59% over three years.
Templeton India Equity Income Fund
The Templeton India Equity Income Fund, managed by Franklin Templeton Investments, seeks to provide high current income and capital appreciation by investing in a mix of Indian and foreign equities with a strong emphasis on dividend-yielding stocks. Franklin Templeton is a globally renowned investment management firm, known for its deep research and disciplined investment approach. The fund has an AUM of Rs. 2,325.52 cr., an expense ratio of 1.25%, and has achieved absolute returns of 51.95% over the past year. The fund’s CAGR over the past three years stands at 25.80%.
UTI Dividend Yield Fund
The UTI Dividend Yield Fund, managed by UTI Mutual Fund, is one of the oldest and most trusted funds in India. UTI Mutual Fund was established in 1963 and has a long history of managing investments with a focus on generating consistent income and long-term capital appreciation. The fund invests primarily in high dividend-yielding companies and has an AUM of Rs. 4,071.32 cr. With an expense ratio of 1.39%, the fund has delivered absolute returns of 51.36% over the past year and a CAGR of 22.03% over the past three years.
HDFC Dividend Yield Fund
The HDFC Dividend Yield Fund, managed by HDFC Mutual Fund, focuses on investing in dividend-yielding stocks to provide regular income and long-term capital growth. HDFC Mutual Fund, established in 1999, is known for its strong management and performance track record. The fund has an AUM of Rs. 5,617.54 cr., and an expense ratio of 0.56%. It has achieved absolute returns of 47.00% over the past year and a CAGR of 28.24% over the past three years.
Sundaram Dividend Yield Fund
The Sundaram Dividend Yield Fund, managed by Sundaram Mutual Fund, invests in high dividend-yielding companies to provide regular income and capital appreciation. Sundaram Mutual Fund, part of the Sundaram Finance Group, has a reputation for disciplined investment practices and strong research capabilities. The fund has an AUM of Rs. 923.54 cr., an expense ratio of 0.97%, and has delivered absolute returns of 44.88% over the past year. Its CAGR over the past three years is 21.51%.
Tata Dividend Yield Fund
The Tata Dividend Yield Fund, managed by Tata Mutual Fund, focuses on companies with a consistent track record of high dividend yields. Tata Mutual Fund, established in 1994, is known for its conservative investment approach and strong research capabilities. The fund has an AUM of Rs. 998.06 cr., and an expense ratio of 0.47%. It has provided absolute returns of 41.35% over the past year and a CAGR of 22.47% over the past three years.
SBI Dividend Yield Fund
The SBI Dividend Yield Fund, managed by SBI Mutual Fund, aims to invest in high dividend-yielding companies to provide regular income and long-term capital appreciation. SBI Mutual Fund, established in 1987, is one of India’s largest and most reputable fund houses. The fund has an AUM of Rs. 7,629.65 cr., and an expense ratio of 0.73%. It has delivered absolute returns of 38.83% over the past year.
What Are Dividend-Paying Mutual Funds?
Some companies declare dividends on their stocks. Only when a company can make profits can it pay dividends. Hence, the financials of these companies would be strong. Like any other mutual fund, the performance of dividend mutual funds is subjected to market conditions. These are considered moderate to high-level risk instruments.
Though the most common pay-out for dividend mutual funds is annual, a few schemes pay it monthly, quarterly, or daily. Though most companies strive to pay dividends per the agreement, it is never guaranteed. The amount of the dividend is also not fixed. The Net Asset Value (NAV) should reach the critical value for the fund house to pay the dividends. The fund managers will not limit themselves to the dividend yield but look at several other company growth prospects before investing.
Features of Dividend Paying Mutual Funds
The two features of dividend mutual funds are
- Asset allocation: According to Securities and Exchange Board of India (SEBI) rules, a dividend yield mutual fund must invest at least 65% of the fund corpus in equity and equity-related instruments.
- Risk-reward ratio: As the dividend paying mutual funds deal with stocks, the performance can be volatile. However, compared to other equity-related schemes, dividend mutual funds are less volatile.
How to Invest in the Best Dividend Mutual Funds with Tickertape?
Tickertape can help you invest in the best dividend mutual funds with ease. Here’s a step-by-step guide:
1. Sign Up and Set Up Your Profile:
First, you need to sign up on Tickertape and set up your investment profile.
2. Use the Screener:
Tickertape Mutual Fund Screener filters stocks based on various criteria such as dividend yield, fund performance, and expense ratio. There are over 50 such criterias and a feature to build your custom filter. For instance, you can look for funds with high dividend yield or those with a strong mutual fund dividend history.
3. Analyse Fund Details:
Once you have a list of potential funds, you can delve deeper into each one’s details. Tickertape provides comprehensive data on fund portfolios, recent dividends of mutual funds, and historical performance. With the help of thorough information about a fund, you can make an informed decision about investing.
4. Compare Funds:
Tickertape allows you to compare different funds side by side. You can compare factors like dividend yield, expense ratio, and past performance to choose the best dividend mutual funds. Check out x peers.
When you get the funds based on your preferred criteria, budget, and risk profile, invest in them via your preferred platform of investment. Remember, it is always worthwhile to consult a professional before investing.
How to Identify the Best Dividend Paying Mutual Fund?
Identifying the best dividend-paying mutual funds can be a crucial step in achieving a steady income stream from your investments. Here are some factors you may want to consider:
1. Dividend Yield:
You can start by looking at the dividend yield of a mutual fund. Dividend yield is calculated by dividing the annual dividends paid by the mutual fund by its current net asset value (NAV). Higher dividend yield funds can provide better regular income.
2. Historical Performance:
Reviewing the mutual fund dividend history can provide insights into the consistency and reliability of dividend payments. Funds with a stable and growing dividend history might be more attractive.
3. Fund Portfolio:
Analysing the fund’s portfolio is essential. Funds that invest in high dividend yield stocks are likely to offer better dividends. These stocks are typically from companies with strong financial health and the ability to pay regular dividends.
4. Expense Ratio:
The expense ratio of a mutual fund can affect your returns. Lower expense ratios mean more of your money is working for you, which can be particularly beneficial in dividend yield funds.
5. Recent Dividend Announcements:
Keeping track of the recent dividend of mutual funds can help you identify trends and make informed decisions. Funds with recent high dividend payouts may continue to perform well.
Advantages of Dividend Paying Mutual Funds
Dividend mutual funds can provide investors with several potential benefits, which are outlined below:
- Generally Strong Financials: The companies underlying these mutual funds often have robust financials. This strength may suggest the company’s capability to weather market fluctuations, thus providing some stability to your investment.
- High Yield on Dividends Over Time: Dividend mutual funds can potentially offer a high yield on dividends in the long term. This characteristic can make them an attractive option if you are looking for investments that might generate substantial returns over extended periods.
- Exposure to Equity Funds with Less Risk: Investing in dividend mutual funds can expose you to equity funds but typically with less risk compared to other types of equity investments. This feature can be beneficial if you are seeking a balanced approach to equity investing.
- Stable Income at Regular Intervals: These mutual funds can provide a relatively stable income at regular intervals. This regular income stream can be useful for planning and managing your finances, especially if you prefer predictable returns.
Disadvantages of Dividend Paying Mutual Funds
Dividend mutual funds are not without their drawbacks, which are outlined below:
- Potential Underperformance During Bull Markets: When compared to other equity-based schemes, dividend mutual funds may not perform as well during a bull market. This potential underperformance could mean that you might miss out on higher returns that other equity investments could provide during such periods.
- Limited Growth Opportunities: High dividend provision can be initially advantageous for investors. However, it may limit the company’s opportunities for expansion. This limitation can impact the long-term growth prospects of the underlying companies, potentially affecting your returns over time.
Who Should Invest in Dividend Paying Mutual Funds?
Dividend paying mutual funds may be suitable for a variety of investors:
- First-Time Investors: These funds can be ideal for first-time investors due to their typically lower risk compared to other equity investments. If you are new to investing, these funds can provide a way to gain exposure to the stock market with potentially less volatility.
- Investors Seeking Stable Income: If you are looking for stable income, dividend mutual funds can be an option. They can provide a relatively predictable income stream through dividend payments. However, it is important to remember that dividends are not guaranteed, as they depend on the performance of the companies and market conditions.
Tax on Dividends From Mutual Funds
As an investor in mutual funds, it’s essential to understand how dividends are taxed, especially following the significant changes introduced by the Finance Act of 2020. Here’s a comprehensive guide to help you navigate the tax implications of your dividend income.
Key Changes in Dividend Taxation
Before 2020, mutual funds paid a Dividend Distribution Tax (DDT), allowing you to receive dividends tax-free. However, with the abolition of DDT, dividends are now taxed in your hands based on your income tax slab. This means you need to be proactive in understanding how this impacts your overall tax liability.
Tax Rates on Dividend Income
- Taxable Income: Dividends from mutual funds are added to your total income and taxed according to your applicable income tax slab. This could range from 5% to 30%, depending on your total income for the financial year.
- TDS Implications: If your dividend income exceeds Rs. 5,000 in a financial year, a Tax Deducted at Source (TDS) of 10% will be applied. For example, if you receive Rs. 15,000 in dividends, TDS will be deducted on Rs. 10,000, resulting in Rs. 1,000 being withheld.
Reporting Your Dividend Income
When filing your Income Tax Return (ITR), you’ll need to report your dividend income under the “Income from Other Sources” section. It’s crucial to keep track of all dividends received throughout the year to ensure accurate reporting.
Deductions You Can Claim
You can claim a deduction of up to 20% of your gross dividend income for any interest expenses incurred to earn that income. However, keep in mind that other expenses, such as commissions or fees, are not eligible for deductions.
Foreign Dividends
If you invest in foreign mutual funds or receive dividends from foreign companies, these are also taxable in India. You can choose to be taxed at a flat rate of 20% or at your applicable income tax slab rate. If you’ve paid taxes on these dividends in the foreign country, you may be eligible for relief under double taxation agreements.
Difference Between Growth and Dividend Mutual Funds
Understanding the difference between growth and dividend mutual funds can help you make more informed investment decisions. Here’s a detailed comparison:
| Feature | Dividend Mutual Funds | Growth Mutual Funds |
| Profit Distribution | Profits are paid out to investors as dividends | Profits are reinvested back into the fund |
| Income | Provides regular income through dividend payouts | No regular income, as profits are reinvested |
| Capital Appreciation | Potential for lower capital appreciation over the long term | Potential for higher capital appreciation over the long term |
| Preferred By | Investors seeking regular cash flows from their investments | Investors focused on long-term wealth accumulation |
| NAV Impact | NAV may decrease after dividend payouts | NAV increases as profits are reinvested |
| Tax Implications | Dividends are taxable in the hands of investors | Capital gains are realised only on redemption |
In summary, if you seek regular income from your investments, dividend mutual funds might be a suitable option. On the other hand, if your goal is long-term growth and you do not require periodic payouts, growth mutual funds may be more appropriate. Regardless of your choice, it is important to consider your financial goals and risk tolerance. Consulting a financial advisor can also provide valuable insights tailored to your specific needs.
To Conclude
Finding the right investment that aligns with your investment goals and risk tolerance is difficult, especially when you are given several options. For this, you need to understand each and every mutual fund product, the performance metrics, the risk involved, etc. and compare them to find the right one for you. This is where the Tickertape Mutual Fund Screener comes to your rescue. It allows you to find the right mutual fund based on your financial goals.
Kickstart your investment journey today by logging on to Tickertape and linking your broker account. Before investing, ensure you understand mutual funds and their types and then proceed to analyse the fundamentals of a fund. Not just that, but keep your investment goals and risk appetite in mind. Happy screening and investing!
FAQs About the Best Dividend Paying Funds in India
1. What is a dividend in mutual funds?
The dividend is a portion of profits provided by a company to the shareholders for investing in their stock. It represents the income generated from the underlying investments in the fund, such as stocks or bonds, which is then paid out to investors either in cash or additional shares.
2. Are non-residents of India eligible for dividend paying mutual funds?
Yes. Non-residents of India are eligible to invest in dividend paying mutual funds.
3. How to know if the fund manager has invested your money in a dividend mutual funds scheme?
As per the SEBI rules, the mutual funds need to disclose entire portfolios of all schemes monthly on their website. It allows investors to review the investments and track the allocation.
4. What are the top monthly dividend paying mutual funds in India?
You can use the Tickertape Mutual Fund Screener to find the top monthly dividend paying mutual funds in India based on returns. However, the pay-out schedule on the dividend mutual funds varies with the scheme.
5. Do mutual funds pay dividends?
A dividend is a portion of the company’s profits paid to the shareholders. But not all mutual funds pay dividends. Some companies reinvest the profit back into the company for growth and expansion.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
