How Can You Buy Dividend Plans for a Mutual Fund?
Do mutual funds have dividend plans?
The answer is yes!
To understand how one can buy a dividend plan for a mutual fund, it is essential first to understand the concept of a dividend plan and what a dividend option means in a mutual fund.
Dividend mutual funds are stock mutual funds that invest primarily in companies that pay dividends.
This is the profit that the company distributes to its shareholders.
Let's take the example of an equity mutual fund or debt scheme. A dividend can be declared for the unitholders of the scheme, and this dividend will be declared from the realized profit of the portfolio.
By realized profit, I mean the gain made from selling instruments at a price that will be higher than the purchased price of the instrument.
It is also noted that unrealized profit generated from securities or instruments held in the portfolio will not be used to pay dividends.
Depending upon the unitholder, dividends can be used as a source of income, or they can also be used to buy more units of the mutual fund.
Most investors who buy dividend mutual funds are usually looking for a stable source of income.
This scheme is best suited for retired investors who tend to be risk-averse.
This is because dividend mutual fund schemes are less aggressive than other funds such as growth stock mutual funds.
How to Buy a Dividend Plan for a Mutual Fund?
In a mutual fund, the dividend plan refers to the payment of profits to investors in the form of dividends. This payment can be made regularly or at the end of the investment period.
Here's basically how you need to buy a dividend plan for a mutual fund in India:
- Research: Choose the mutual fund you want to invest in and research the dividend plans offered by the fund.
- Check the NAV: Check the fund's Net Asset Value (NAV) and ensure it is within your budget.
- Register with the fund house: Register yourself with the fund house by filling up the application form and submitting it along with KYC documents.
- Select the dividend plan: Choose the one you want to invest in and mention it in the application form.
- Investment amount: Mention the amount you want to invest in the fund.
- Payment: Make the payment through net banking or by cheque.
- Confirmation: Once the payment is received, you will get a confirmation of your investment in the fund.
Steps to Buy a Dividend Plan for a Mutual Fund
- First, to buy a dividend plan for a mutual fund, you will need a PAN, bank account, and KYC (know your client) compliance.
- The bank account must be in the investor's name with other details such as the Magnetic Ink Character Recognition (MICR) and Indian Financial System Code (IFSC).
- The customer must complete a KYC form, which is not complex.
This process is uniform across various SEBI-regulated intermediaries in different security markets, such as mutual funds, depository participants, stockbroking, etc.
This ensures that a single KYC eliminates the chance of duplication of the KYC process across the intermediaries mentioned above, making investing more investor-friendly.
Documents required to be submitted along with the KYC application are as follows.
- Recent passport-size photograph
- Identity proof such as a copy of PAN card/ UID (Aadhaar)/passport/ voter ID /driving license
- Address proof, such as passport/driving license/ ration card/registered lease/sale agreement/residence/latest bank A/C statement or passbook /latest telephone bill (only landline)/latest electricity bill/latest gas bill(not older than three months).
The investor will also have to submit copies of all the above documents by self-attesting them and accompanying them along with originals for verification.
In case original documents cannot be produced for verification for whatsoever reason. The copies will have to be properly attested by entities that are authorized to certify the documents.
Where Can You Buy Dividend Mutual Funds From?
How can you invest in such funds?
An investor can invest via different methods like online or offline and direct or regular plans.
1. Direct Plan
You can buy dividend mutual funds through a direct plan, but there are chances that you will be paid a different dividend that is usually smaller than a regular plan.
Lately, there have been talks with SEBI to get investors equal dividends in both regular and direct plans.
2. IFAs
IFAs or Independent Financial Advisors act as agents to facilitate a mutual fund investment.
Just like the intermediaries, they help you fill out the application form and submit it to the Asset Management Company or the AMC.
3. AMC
Instead of going to intermediaries or IFAs, you can invest directly in a mutual fund scheme through the AMC.
The first time you might have to go to the AMC's office.
Once that is done, future scheme investments will be made available online using the folio number in your name.
4. Banks
Banks act as intermediaries that distribute fund schemes of different AMCs. You can invest directly at your bank branch.
5. Demat and Online Trading Account
If you have a Demat account, you can buy and sell mutual fund schemes through them
6. Online Portals
This is where you need to pay attention.
Through online, paperless websites like Groww, you can invest in mutual fund schemes across various AMCs.
Portals like these have tie-ups with banks to facilitate easy fund transfers when investing.
Happy Investing!
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.