The beauty of mutual fund is that investors have multiple investment options even after choosing the scheme. For example, once they have decided which mutual fund to invest in the next thing, they have to choose is whether they want to go with the regular plan or direct plan. The difference between these two plans is that direct plans have a low expense ratio as compared to regular plans. Once investors have decided whether they want to opt for a direct plan or regular plan, investors then have to decide whether they wish to make a onetime lumpsum investment or whether they wish to opt for a systematic investment plan.
Similarly, a mutual fund investor can opt for a payout option in the form of dividend payout plan or they can go with the growth plan Mutual funds investors have the option of opting for a growth plan or a dividend plan.
What is growth plan?
A growth mutual fund plan aims to offer returns in the form of increasing value of the units. Here, the capital appreciation generated by the mutual fund is invested back in the scheme. When the returns earned by the scheme are reinvested over and over again, over the long term investors can benefit from compounding. A growth plan may suit investors with a long term investment horizon as over the long term, profits that get reinvested may snowball into to a commendable corpus.
What is dividend plan?
While growth plan is well suited for investors with a long term investment horizon, a dividend plan is preferred by investors seeking regular income through their mutual fund investments. In dividend distribution plan the mutual fund scheme instead of reinvesting the profits earned, rolls out bonuses in the form of dividends to investors. The most common dividend plan is the one which is rolled out annually. However, fund houses these days are even offering dividends on a weekly, monthly, quarterly basis.
What are dividend yielding mutual funds?
A dividend yielding mutual fund is an open ended scheme which invests in companies that have the potential to roll out dividends at regular intervals. As per market regulator SEBI (Securities and Exchange Board of India) mandate, a dividend yielding fund must invest a minimum of 65% of its investible corpus in dividend-yielding instruments.
Dividend yielding funds which have more than 65% exposure to equity are categorized as dividend yielding equity funds. On the other hands, dividend yielding funds don’t have such exposure are classified as dividend yielding debt funds.
Which are some of the highest yielding mutual funds?
The investment objective of dividend yielding mutual funds is to offer consistent dividend to its investors by predominantly investing in dividend yielding assets. It is the responsibility of the fund manager to invest in securities of companies that may the potential to offer decent dividends. However, just like any other mutual fund scheme, dividend yielding mutual funds do not offer guaranteed returns. Dividends rolled out by the fund house are subject to the market performance of the mutual fund.
Equity funds are one of the highest yielding mutual fund schemes that have offered double digit returns in the past. Equity funds are highly volatile in nature and retail investors are expected to seek professional consultation before investing. If the fund manager and his team of analysts and market researchers are able to adopt and implement the right investment strategy by picking securities that align with the fund’s investment objective, that particular fund may be able to offer decent dividends to investors.