With taxation under DTC, which is the better choice between dividend and growth option when investing in mutual funds?
- V V Rao
At present, dividend earned from equity funds is tax free. However, when the DTC comes into effect from April 1, 2012; dividend from equity mutual funds will be taxed at the rate of 5 per cent. This will be deducted by the fund house itself before it is credited to your account.
In the case of debt-oriented mutual funds, the dividend received will be added to your income and taxed at normal slab rates as applicable. Earlier dividend from debt mutual funds was taxed at the rate of 12.5 per cent.
It will be a better proposition to shift from the dividend option to growth option when DTC comes into effect. You can stop your existing SIPs in the dividend option and initiate fresh SIPs in the growth option.