Dividend On Your Mutual Funds

Dividend Mutual Funds are schemes where investors invest their money, with the idea of getting regular dividend payments. How do these Fund companies pay such dividends ? They use all the money collected from the investors, put them into different monetary schemes, and the profit they make on the different schemes, they pay out as dividends to the investors. So, in actual fact, what you think you are receiving as some kind of bonus (or dividend) payment, is just money made on your money which has been invested. So don't let the word 'dividend' fool you.

A good many people feel they can squeeze a monthly income out of their investments by enrolling in Dividend Mutual Funds, and getting dividend payments. There are three options to dividend payments, when you enroll in the Fund. One option is to receive the dividend payments, as and when they are declared. The second option is to just let your money grow in the scheme. The third option is to request that your dividend amount be added on to your capital invested in the scheme. As for the notion that declared dividends will supplement your monthly income, that cannot be the case. Dividends are declared 'as and when' - there is no set time, or date, for this. Also, the amount of the dividend is not a fixed figure, it can vary at each declaration. So if there is no fixed amount, and no fixed time to receive the dividends, they cannot and will not become a monthly addition. Realising that investors, especially the smaller investors, eagerly look forward to getting dividends, Fund companies are wily enough to promote the Dividend Mutual Funds concept, to attract more clients. What the investors do not realize is, that from the date they join the Fund, to the date any actual dividend payment is made, their money is already earning interest in the Fund scheme. So the dividend they receive, again becomes their own money they are receiving back. Whether your investment is lying for a short term, say one year, or for more than a year, the investment does not attract any tax.

But the fact remains, that when you invest in Dividend Mutual Funds, you would like to squeeze out whatever profits or gains you can, either in the form of dividends, or relief from tax. A short term investment is good if you would like to sell off your units, and not be subject to tax. But to really enjoy the benefits of the Dividend Mutual Funds scheme, investing for a period longer than one year is preferable. At the end of such period you can opt to reinvest your dividends, which in turn will increase your capital.

Peer Merx is author on many blogs on financial topics. His focus is in how to make money in today market and financial crisis and to save money on expenses and loans and investing with e.g. dividend mutual funds. Read more on his blog: http://www.dividendmutualfund.org

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