Mutual fund investors are increasingly opting for dividend options, fueled by income tax relief benefits.

In recent months, there has been a notable increase in the number of investors opting for the dividend option in mutual funds, according to Madhu Nair, CEO of Union Mutual Fund. This trend can be attributed to the income tax relief of ₹12 lakh provided under the new tax regime, which has sparked interest in dividend options, particularly among retirees, conservative investors, and mid-level salaried class investors.

Jignesh Madhwani, Founder & Director of Torin Wealth Management, echoes this sentiment, stating that the new tax regime's tax-free income up to ₹12 lakh has made the dividend option more attractive for many. He also notes that in equity mutual funds, dividends are not guaranteed and depend on the scheme's distributable surplus.

Sunil Subramaniam, director of Sense and Simplicity, adds that under the new regime, total income up to ₹12 lakh is exempt, but this does not apply to capital gains tax, including gains on equity mutual funds. He also notes that the dividend option is considered suitable for investors who require periodic cash flow and remain within the exempted income slab.

In a related development, the Government abolished the dividend distribution tax in Budget 2020 and shifted the obligation of paying tax on dividend income to investors as per their slab rate. This means that if an investor falls in the 30 per cent tax bracket, his dividend income will be taxed at 30 per cent, irrespective of the total amount earned through dividend. Sunil Subramaniam also notes that once annual income surpasses ₹12 lakh, dividends could increase taxable income and potentially raise tax liability.

Meanwhile, investments in Indian gold ETFs have risen for the fourth consecutive month, while Foreign Portfolio Investors (FPIs) withdrew ₹10,486 crore in four days amid global uncertainties. These facts are not directly related to the increasing interest in the dividend option but are worth noting in the context of the Indian investment landscape.

In conclusion, the income tax relief of ₹12 lakh under the new tax regime has led to a surge in the number of investors opting for the dividend option in mutual funds. This trend is particularly noticeable among retirees, conservative investors, and mid-level salaried class investors who require periodic cash flow and remain within the exempted income slab. However, it is important to note that the dividend option is not without its risks, as dividends are not guaranteed and depend on the scheme's distributable surplus.

Mutual fund investors are increasingly opting for dividend options, fueled by income tax relief benefits.