Mutual Fund dividend calculation - a misleading method for customer

Every AMC (Asset Management Company) announces dividend in the month of January to March as many people are interested in saving tax and making investment for Section 80C.These people do not really understand the concept of mutual fund dividend calculation and make investment for fund which declares high dividend. People put more focus on dividend % than fund performance. It’s never like the mutual fund gives high dividend is best performer in that category of mutual fund.

The corporate/Share dividend and mutual fund dividend are two sides of the coin. The share dividend is profit of the company shared with share holder and your share price will not changed based on dividend. The mutual fund dividend is not profit of the fund but it’s your own money given back after reducing fund value.

This is really terrible way to invest money in any kind of dividend oriented mutual fund. Let’s take an example of real investment in mutual fund.

You purchase a new mutual fund (a dividend fund) for Rs 1000 with current NAV of Rs 10. So, you receive 100 Units for this purchase. The fund announces a dividend of 50 percent. Remember the dividend will be calculated on fund‘s face value, which is Rs 10.So you will get Rs 5 per unit held by you which comes Rs 500 (5 X 100) on dividend record date. The NAV of fund will drop by Rs 5 on the record date. So, on the record date of dividend calculation, you will get Rs 500 as dividend and fund value will be Rs 500 instead of Rs 1000 now so total investment plus profit is again Rs 1000.

Mutual Fund Dividend calculation method

Dividend Fund




Fund Value

Realised Gain thru Dividends

Total Profit & Investment

Investment of 1000






Dividend 50%






Dividend 20%






So, you have not got any gain in this dividend declaration by the mutual fund company. There are simply making publicity to gain large no of new customer.
If you really need your money back immediately while making fresh purchase of Mutual fund then you can opt for dividend fund like the case of tax saving Equity linked saving scheme (ELSS).But this is not best practice to follow regularly. It will be difficult to track your investment as AMC will keep on declaring dividend once or twice in a year. it will be more difficult to get cheques from AMC then submit to the banks regularly if you have not opted for direct deposit in bank account.

If you invest money in dividend fund then you will receive partial amount of your fund value whenever Asset management company (AMC) announces mutual fund dividends. But remember your investment amount will reduce based on dividend declaration.

The only good points about dividend fund are dividend is Tax free.
So, don’t put more focus on dividend percent rather check fund’s past performance.