It’s time to Change your Mutual Fund Dividend Strategy
Till now, Tax Savvy investors chose Dividend strategy on Mutual Funds more because of Tax Arbitrage. Dividend Distribution Tax of 11.65% ( 10% of DDT + 12% od Surcharge and 4% Cess ) on Mutual Funds is lower than the Capital Gains from the short term tax rate of 15.6% ( Inclusive of Cess )
As dividends become taxable from 2020 Apr, It is no longer viable for Client to keep their money in Dividend schemes and it is completely wise to stay away from Mutual Funds Dividends Schemes. With dividend made taxable, the growth option is more beneficial and tax efficient.
Many of Mutual Funds investors need regular income, If you need reqular income from Mutual Fund investments, just withdraw required money from the mutual fund as Systematic withdrawal plan. If you do this you will end up paying much lesser tax for the same withdrawal amount, because the withdrawals are subject to Capital Gains and not as Income Tax.
Regardless of whatever the changes on the recent budget by our Finance Minister, dividend strategy is always a bad idea. It never allows your money to grow compounded and Now you have all the right reason to change your strategy from Dividend to Growth.
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