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Dividends of Index Funds

The quantum is low and does not really show much

I have read that many Nifty companies declare dividends. However, even though I have invested in a Nifty index fund, I haven’t received any dividends as yet. Who gets these dividends?

Most of the Nifty and Sensex stocks do declare dividends, but the dividend declared by the index as a whole is not much.

The dividend declared by stocks that the fund holds go back into the fund. This is reflected in the NAV. But because the quantum of dividends is very low, the dividend declaration does not result in a significant appreciation. For instance a Nifty index comprises of 50 companies. At any given point of time only a handful would declare dividends. And hence the total effect on the fund's NAV will not be very significant.

As to when will you get the dividend, it is dependent on the fund you have invested in and the option you have chosen. Many index funds do not have a dividend option. This means that any gains you wish to take will have to be obtained by redeeming the units. And the dividend declared by the inherent companies will appear as an increase in NAV. If you are invested in the dividend option of an index fund, you can wait for the scheme to declare dividends.

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