Top Best Dividend Mutual Funds in India

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Virendra, a 40-year-old marketing head, wants to invest in mutual funds that generate a steady income stream. Dividend mutual funds are his chosen avenue because these funds invest 65% of assets in equity-associated instruments that yield regular dividends. As the companies pay regular dividends to their shareholders, Virender can have a steady income. 

Let’s understand dividend mutual funds and explore the best dividend mutual funds in India for 2024.

Dividend Mutual Funds – What are They?

Among the many types of mutual funds, dividend mutual funds invest primarily in companies that declare periodic dividends. The dividend is essentially a portion of the company’s profits it pays its investors. The dividends from these mutual funds are the regular returns from these equity investments. 

Investing in dividend funds provides medium and long-term gains at moderate risk. The goal of this type of investment is capital appreciation and steady returns. The risk is lower because companies that pay regular dividends are usually more financially stable. As they share their profits, these companies are expected to turn profits regularly. 

The dividend-yielding funds are suitable for capital appreciation if the fund manager invests more than 65% in equities. Otherwise, the dividend-yielding debt funds are more suitable for income generation. Ensure you understand how the fund manager supports evaluating the investment performance. 

Features of the Best Dividend Mutual Funds

As companies announce dividend payments only when they announce profits, fund managers can select profit-making companies based on historical performance. The Nifty Dividend Opportunities 50 index is a benchmark against these funds. 

If the fund manager chooses to invest in dividend yield funds with a tilt value, they invest in currently undervalued stocks. When the market price is lower than the intrinsic value for company stocks with solid fundamentals, the market will realise the actual value. This will result in the appreciation of stocks, earning better returns. Some of the unique features of the best dividend mutual funds in India are:

  • More than 70% to 80% of the corpus is invested in companies paying dividends higher than the benchmark index.
  • Most fund managers invest in blue-chip companies with a simple business model.
  • Generally, companies with complex business models are avoided. 
  • Stocks are selected based on the past track record of dividend payments. 
  • As per SEBI, 50% of investments must be done in large-cap businesses. 
  • EPS and EPS growth rates are crucial metrics that determine how likely the companies are to increase their dividend payouts. 

Advantages and Risks of Investing in Dividend Mutual Funds

Every investment option has its benefits and disadvantages. Let’s understand the advantages and risks of dividend yield mutual funds. 

Invested in companies with higher potential for regular dividend payouts. Stable, large-cap, blue-chip companies are chosen.Large-cap companies are resistant to market volatility and have lower risk.Provides more tax-efficient returns.Higher potential to yield higher returns in the future.As money is invested in equity, market volatility plays a significant role.Higher risk than debt funds but lower risk than 100% equity funds. Smaller fund sizes may be appealing because of capital appreciation potential, but small mistake investments can eliminate chances of higher returns. Thematic dividend yield funds are more suitable for experienced investors with equity investment knowledge. Large, stable companies have less room for growth in the future, but they are more stable. 

Understanding Taxation on Dividend Mutual Funds

Investment returns are taxable, and these taxes can erode your returns. So, understanding tax implications on your mutual fund investments is crucial. 

The taxation on your dividend mutual funds depends on how the fund manager allocates investments. Equity investment tax applies if more than 65% of the corpus is invested in equities.

  • For a holding period of less than 12 months, tax is 15% + cess
  • For a holding period of more than 12 months, they are tax-free if gains are less than Rs. 1 lakh. If gains are more than Rs. 1 lakh, the tax rate is 10% + cess.

The income from dividends is taxable and taxed based on your income bracket. Also, if dividend amounts are more than Rs. 5000 in a financial year, a 10% TDS is also applicable. 

If the fund manager invests <65% of assets in equity, then the dividend debt funds are taxed differently as debt funds. The dividends are categorised as short-term or long-term capital gains

  •  based on the duration of holding dividend mutual funds. 
  • Holding dividend yield mutual funds for less than 3 years or 36 months is considered short-term capital gains and taxed as per your income tax slab rate. 
  • Holding dividend yield mutual funds for more than 36 months is considered long-term capital gains and taxed at 20% after indexation. 

Best Dividend Paying Mutual Funds for 2024

Want to start investing in mutual funds that payout the highest dividends? Check out the list below:

FundRisk1Y Returns Fund Size (in crore)
ICICI Prudential Dividend Yield Equity Fund – Direct PlanVery High54.1%3,454
Templeton India Equity Income Fund – Direct PlanVery high47.2%1,993
UTI Dividend Yield Fund – Direct PlanVery high42%89
Sundaram Dividend Yield Fund – Direct PlanVery high45.9%782
Aditya Birla Sun Life Dividend Yield Fund – Direct PlanVery high53.8%1,276


The best dividend mutual funds in India are suitable for investors who want the return potential of equity funds with lower volatility. The crucial factor to consider here is to ensure that funds are invested in companies with robust financial performance. The fund manager must do extensive research to select the ideal strategy. As these funds carry a higher risk with better rewards, ensure that your risk appetite aligns with the fund risk. 


Are dividend-yield mutual funds highly risky?

Yes, dividend-yield mutual funds invest more than 65% in equity and carry a higher risk than debt funds. However, they have a lower risk compared to 100% equity investments. 

How can I invest in dividend-yield mutual funds?

You can invest a lump sum in these funds if you prefer. Invest only the surplus amount you won’t need immediately in these funds. Many fund houses also allow you to make monthly investments through a Systematic Investment Plan (SIP). 

Can I re-invest the dividends declared by the underlying company in the same funds?

Yes, it is possible to re-invest dividend payouts in the funds. However, it depends on your fund house and the fund manager’s decision. 


Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.