Top 5 dividend paying MFs

When the word ‘dividend’ comes into play in mutual funds, people just relate them with the way they receive the dividends on stocks. However, it is quite foolish to do so. This is because the dividend that you receive in stocks is paid from the profits earned by the company and not from the capital that you invest. However, in the case of mutual funds, the dividend that you receive is not from the profits made by the fund house, but from your appreciated investments. 

Let us now understand how dividend from stocks and mutual funds are different. It makes more sense to understand who should opt for these options and what the alternatives to this option are. Talking about who should opt for the dividend option, investors, who are not solely dependent on the dividend income or are considering dividends from mutual funds as their additional income can opt for this option. However, those who want to make dividends from MFs as their primary source should consider other alternatives. This is because it is at the discretion of the mutual fund whether or not to pay any dividend and you don’t have any control over the decision regarding how much dividend is to be paid in terms of amount. Therefore, it makes more sense for such investors to seek other alternatives to dividend option. 

So, what are those different alternatives to the dividend option? The first straightforward option is to invest a lumpsum amount and then as per your requirement, redeem units. Secondly, you can choose a smart option known as systematic withdrawal plan (SWP). This way you would be able to get the required amount periodically. Also, it is at your discretion whether or not to get regular income. 

Having said, for those, who wish to go ahead with the dividend option, here is a list of the top 5 equity funds with dividend options. While coming at this list, we have only handpicked funds from large-cap, mid-cap, small-cap and flexi-cap with trailing three-year annual dividend yield.