Mutual funds that invest in companies paying high dividends are called high dividend mutual funds. Dividends are generally profits earned by the companies, which they eventually distribute to their shareholders. The asset management company can opt to pay dividends on a daily, weekly, monthly, quarterly or annual basis.
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Investors need not pay tax on dividends earned from mutual funds below Rs 10 Lakhs. Yes, you heard that right.
If the dividend earned exceeds Rs 10 Lakhs, the investor is supposed to pay 10% tax on the total earnings of a specific year.
Section 10 (34) income tax act - Dividends earned on the stocks of Indian companies are tax free.
At the same time, companies or mutual fund houses issuing dividends are expected to deduct taxes before distributing them.
See Also: Dividend Vs Growth Option
The company must pay tax under this section on the profits earned. The remaining profit is to be distributed among the investors as dividends. This is exclusively for dividends declared by Indian companies.
Equity mutual funds are subject to 10% DDT. Debt mutual funds are subject to 25% DDT. With the addition of health and education cess and surcharge, the rate increases to 29%.
Picking a mutual fund scheme is subjective. It depends on risk appetite, expected returns, time period and so on. Here we have mentioned a few high dividend mutual funds that could be considered profitable in 2020:
See Also: How to select Mutual funds India?
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