I would like to know which is the better option dividend payout or growth in case of investment in Liquid funds or Short term funds.
- Probal Kumar Ghosh
Liquid funds or short-term funds invest in short-term debt instruments with maturities of less than 91 days. The choice of dividend payout or growth depends on your investment horizon and your financial needs. If you want to invest for less than a year and need some money at regular intervals you can choose the dividend payout option. The AMC will deduct 25 per cent Dividend Distribution Tax (DDT) on dividend paid out. Also, gains from redemptions made in less than 12 months will be added to your income and taxed according your tax slab. So besides the DDT, you will be paying tax on gains at 10, 20 or 30 per cent, the tax slab applicable to you.
If you wish to stay invested for more than a year consider choosing the growth option as you will save on the DDT. Also, the gains will be subjected to long-term capital gains tax at 10 per cent without indexation and 20 per cent with indexation.
Investing in the growth option for more than a year would be more tax-efficient and high return proposition.
Liquid funds invest in money market instruments, short-term corporate deposits and bonds with maturity between three and six months. These funds provide good liquidity, low interest rate risk and the prevailing yield in the market. For these reasons, liquid funds are also used as an alternative to short-term fix deposits.
This article was originally published on April 22, 2013.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
