Assets, in which investors invest, like stocks and mutual funds, do have another source of return, other than a change in price, which is known as dividends.

Generally, we are offered two types of schemes, while we plan to invest whether in stocks or mutual funds, growth, and dividend. Investors invest in different assets seeking growth, but they also get attracted towards, dividends, which are part of the investment return that an equity investor receives. The dividend receives get added to their regular income and ease their monthly finances.

But here the question is whether dividends payout is enough of a reason to pick a particular investment option? Well, let us see.

High Dividend Yielding Stocks

Dividends yield measures your earning margin from dividends declared assuming you bought the stock today. For example, if the market price of a stock is Rs 100 and it announces a Rs 5 dividend per share, then the dividend yield is 5%.

Some investors compare this dividend with annual interest from deposits and see where the post-tax return is higher to decide which a better investment option is.

Dividends help long-term investors to gain from regular pay-outs; also their regular payouts can be used as their extra income. In some cases, a company continues to pay a high dividend from accumulated profit to make their dividend yield look good. However, if incremental profits are not growing at the same rate, the market price of the share will suffer.

For example, public sector listed stock GAIL has a dividends yield of 7% or thereabouts which is attractive, but, the capital value or price has fallen 31% in the last year.

This clearly shows that only a good dividend payout is not enough to base stock or mutual fund scheme selection, not even any other asset class.

Mutual Fund Dividends

Dividend Equity Mutual Funds was most preferred to investors who look for extra regular income, but only till it was tax-free in hands. After Union Budget 2020, the dividends received in the hands of investors is taxable.

Well, as per experts, even before this change in the last Union Budget, dividend options in mutual funds were not gainful. This is because, in the case of stocks, dividends payout is an additional income originating from the company to its shareholders, while in mutual funds, dividend payout is basically growth in capital value (including dividend received) being paid out as income. This means dividend payout in mutual funds is the withdrawal of your own profit and not extra income.

So basically, if we conclude, we can say that choosing growth option, in any of the asset class, be stock market or mutual funds, instead of dividend is more profitable. In the case of mutual funds, it’s best to stay away from dividend plans and stick to growth plans where gains accumulate and compound.

Also Read: How Investing Regularly For Long Term Can Help Create A Good Wealth?

Looking For Dividend Plans to invest? 2 things which you must know!!

What is Lorem Ipsum? Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.

Why do we use it? It is a long-established fact that a reader will be distracted by the readable content of a page when looking at its layout. The point of using Lorem Ipsum is that it has a more-or-less normal distribution of letters, as opposed to using ‘Content here, content here, making it look like readable English. Many desktop publishing packages and web page editors now use Lorem Ipsum as their default model text, and a search for ‘lorem Ipsum will uncover many websites still in their infancy. Various versions have evolved over the years, sometimes by accident, sometimes on purpose (injected humour and the like).

Where does it come from? Contrary to popular belief, Lorem Ipsum is not simply random text. It has roots in a piece of classical Latin literature from 45 BC, making it over 2000 years old. Richard McClintock, a Latin professor at Hampden-Sydney College in Virginia, looked up one of the more obscure Latin words, consectetur, from a Lorem Ipsum passage, and going through the cites of the word in classical literature, discovered the undoubtable source. Lorem Ipsum comes from sections 1.10.32 and 1.10.33 of “de Finibus Bonorum et Malorum” (The Extremes of Good and Evil) by Cicero, written in 45 BC. This book is a treatise on the theory of ethics, very popular during the Renaissance. The first line of Lorem Ipsum, “Lorem ipsum dolor sit amet..”, comes from a line in section 1.10.32.

The standard chunk of Lorem Ipsum used since the 1500s is reproduced below for those interested. Sections 1.10.32 and 1.10.33 from “de Finibus Bonorum et Malorum” by Cicero are also reproduced in their exact original form, accompanied by English versions from the 1914 translation by H. Rackham.

No posts found!