I am told by a friend that Tata Balanced Fund provides a monthly dividend option. Its returns are tax-free and better than bank fixed deposits. Is this true? Kindly guide. Are there any other mutual funds like Tata Balanced? Also guide me whether I should invest in mutual funds with monthly or quarterly or yearly dividends. I believe such funds are better than bank fixed deposits or the Senior Citizen Savings Scheme.
- Pramod Sisodia
Yes, balanced funds can give you better returns than bank deposits and the Senior Citizen Savings Scheme (SCSS). But you should note that this is not an apples-to-apples comparison. Bank deposits and the SCSS are debt options that offer guaranteed and fixed returns. Balanced funds give you market-related returns by investing in a mix of debt and equity. While they can deliver healthy returns of 12-13 per cent CAGR over five years or more, they may generate negative returns in the short term depending on equity-market conditions. This is why it is not a good idea to rely on balanced funds for regular income. They are a better vehicle for accumulating inflation-beating returns over the long term.
If balanced funds do suit your risk appetite and needs, yes, Tata Balanced Fund is a good option. It is a four-star-rated fund. This fund has offered a monthly dividend option since October 2010 and given uninterrupted dividend every month since November 2012. Two other good balanced funds with regular dividends are given below.
And yes, balanced funds are more tax-efficient than bank deposits. Dividends declared by them are tax-free. Even capital gains from all such investments held for more than a year are tax-free. You may invest in these funds after considering the above-mentioned points.
| Scheme name | 1-yr ret (%) | 3-yr ret (%) | 5-yr ret (%) |
| ICICI Pru Balanced Advantage Fund | 10.22 | 16.93 | 13.25 |
| L&T India Prudence Fund | 17.31 | 22.22 | - |
| Tata Balanced Fund | 16.7 | 21.49 | 14.62 |
If you are game for risks, instead of the monthly dividend option, you may choose the growth option and redeem your units at quarterly, half-yearly or annual intervals to ensure regular cash flows.
This article was originally published on October 01, 2015.
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