Should I invest in SIP or lump sum when investing in a large-cap fund? Is dividend income from mutual funds taxed?- Arvind Nagpal
Dividend income from equity mutual funds are not taxed, however the proposed direct taxes code, which is likely to come into effect from April 1, 2012 would tax it at 5 per cent. Dividend income from debt mutual funds is tax-free in the hands of the investor; however, the asset management company deducts a dividend distribution tax from the dividend before passing it to the investor.
Between lump sum and SIP investments, the choice of investment depends on the type of fund you wish to invest in considering mutual funds are of various types within debt and equity category. With SIP investments one can average the cost of acquisition considering value of fund NAVs move up and down unpredictably. So, diversified schemes that reflect either the equity market or a segment of it would be the best choice to invest with SIPs. Lump sum investments work well in debt, sector and thematic funds and are also advisable when investing in tax planning funds which have a three year lock-in on investments.
This article was originally published on August 25, 2011.
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