ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Investing in Mutual Funds - Dividend Distribution Tax on Debt and Equity Funds

Updated on June 6, 2011

Below is important information for investors who are interested in investing in mutual funds mainly debt mutual funds and equity mutual funds and want to know about the tax liability of mutual funds. Taxation is an important aspect in personal finance and investment and you need to pay taxes for any short term or long term capital gains you may accumulate from investment in anything whether it is stocks, shares, bonds, real estate, commodities, or mutual funds, so go on and read this info which I have arranged in a question and answer format. It is important to note that investment in shares and mutual funds is subject to market risk and you should go through the investment offer carefully before investing money.

Investing in Debt Funds - Dividend Distribution Tax on Debt Funds

Question: I want to invest in debt mutual funds, but I want to know the dividend distribution tax on debt funds for ultra short term debt and medium term. I know that dividend distribution tax for ultra short term debt funds is 25%. Is this any different for medium term debt funds?

Answer: No, taxation for medium and short term debt funds is the same. Well dividend distribution tax is deducted and then dividends are paid to investors. Tax on debt funds for short term capital gains tax is as per individual tax bracket, so if you are in 30% tax bracket, you will have to pay 30%. Long term capital gains tax is (i) with indexation 20% on gains (ii) 10% without indexation. Indexation is used to reduce the profits and thus the tax on it.

For dividend distribution tax on money market funds, i.e., ultra short term for example cash funds or liquid funds, dividend distribution tax is 25 % for individuals and 33% for corporate. For rest all types of debt mutual funds, it is 14.25% for individual and 33% corporate.

Investing in Equity Mutual Funds - Dividend Distribution Tax on Equity Funds

Question: I want to invest in equity mutual funds and I know the dividend payout for equity mutual funds do not pay dividend distribution tax, so dividend reinvestment option in equity funds is same as Growth Option, but can you please guide me on the dividend reinvestment option of medium term debt funds. Will dividend distribution tax be deducted before reinvesting?

Answer: Yes, in this case, dividend distribution tax will be deducted and then the amount will get reinvested in form of units. AMC has to deduct the dividend, no matter of dividend reinvestment option and submit it to the tax department.

Question: In case of dividend reinvestment, do I get units after paying dividend distribution tax from the money kept aside for dividend, if so be the case, I will not be as beneficial as I would be in a growth scheme? Dividend reinvestment, as I understand, is where the mutual fund pays dividend and again takes it back and allots me units. The very fact that it is paying dividend, we will have to pay tax.

Answer: Yes it is very true, the moment dividend is paid, dividend distribution tax is charged. Well for growth scheme, the taxation high or less than 1 year in the short term capital gains tax is 33% for corporate and highest tax brackets as compared to 14.25% in dividend reinvestment for individuals. So in short term, if you want to keep money for less than 1 year, dividend reinvestment option is better and if you want to keep it for more than 1 year, growth option is better.

Best of luck for mutual fund investment in India


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)