Equity Shares: Features, Advantages and Types of Equity Shares

Equity Shares: Features, Advantages and Types of Equity Shares

In the world of finance and investment, we often use the word ‘equity shares’. In fact, it is a part of everyday discussion among investors, stock market analysts, newspapers, business magazines, etc. Whether you term it shares, stocks or ordinary shares, they are all one and the same.

For companies, equity shares are the biggest source of finance which helps them expand and grow. The concept of equity shares is wide and there are many types of it. To begin with, let us understand the meaning of equity shares.

Equity Shares Meaning

Equity shares are the shares that the companies issue to the public for long term financing. Legally the equity shares are not redeemable in nature and that is why they are referred to as long term source of finance for a company. The investors of the equity shares have the right to vote, share the profits and claim the assets of the company. The value of equity shares is expressed in the various term like par value or face value, book value, issue price, market price, intrinsic value and so on.

Let us now learn about the features of equity shares.

Features of Equity Shares
• Equity shareholders have the right to vote on various matters of the company.
• The management of the company is elected by equity shareholders.
• The equity share capital is held permanently by the company and returned only upon winding up.
• Equity shares give the right to the holders to claim dividend on the surplus profits of the company. The rate of dividend on the equity capital is determined by the management of the company.
• Equity shares are transferable in nature. They can be transferred from one person to another with or without consideration.

The above mentioned are few of the features of equity shares. Let us now learn about the advantages of equity shares.

Advantages of Equity Shares

From the Shareholder’s Point of View:
Equity shares are liquid in nature and can be sold easily in the capital market.
• The dividend rate is higher for the equity shareholders when the company earns high profits.
• The equity shareholders have the right to control the company’s management.
• The equity shareholders not only get the benefit of dividend but they also get the benefit of price appreciation in the value of their investment.

From the Company’s Point of View:
• Equity shares are the permanent source of capital for a company.
• There is no requirement of creating a charge over the assets of the company when equity shares are issued.
• The liability of the equity shares is not required to be paid.
• The company does not have any obligation to pay dividend to the shareholders.
• The credit worthiness of the company increases among the investors and creditors when the company has a larger equity capital base.
The above mentioned are the advantages of equity shares to both the shareholders and the company. Let us now learn about the types of equity shares.

Types of Equity Shares

Anyone who makes an investment in equity shares or monitors the functioning of the company must know about the various types of equity shares. The equity shares are presented in the liability side of the balance sheet and they are classified in the following types.

• Authorised Share Capital
As the name suggests, authorised capital is the maximum amount of capital that a company can issue. The authorised limit can be increased after seeking permission from the respective authorities and paying fees.

• Issued Share Capital
Out of the authorised share capital, the capital which the company offers to the investors is termed as issued share capital.

• Subscribed Share Capital
Subscribed capital is a part of the issued share capital that investors agree and accept.

• Paid Up Capital
Paid up capital is a part of the subscribed capital for which the investors pay. In general, the companies issue the shares to the investors after collecting all the money in one go. Therefore, it is not wrong to say that subscribed and paid-up capital is the same thing where the company collects all the money and issues shares. However, conceptually the paid-up capital is the amount of capital that the company invests in the business.

• Right Shares
When you make an investment in equity shares and the company issues further shares to you, it is termed as the right shares. The right shares are issued to protect the ownership of the existing investors.

• Bonus Shares
Bonus shares are issued by the company to its investors in the form of a dividend.

• Sweat Equity Shares
When the employees or directors perform their job well in terms of providing know-how or intellectual property rights to the company, the company issues sweat equity shares to them as a reward.

The above mentioned are the different classes of equity shares. Now let us learn about the various types of equity share prices.

Various Prices of Equity Shares

• Par or Face Value
Par or face value represents the value of shares recorded in the books of accounts.

• Issue Price
The price at which the shares of the company are offered to the investors is called the issue price. In most of the new companies, the face value and the issue price of a share is the same.

• Share at Discount and Share Security Premium
When the company issues its shares at a price which is lower than its face value, the deficit amount is termed as a discount. On the other hand, when the company issues its shares at a price which is higher than its face value, the excess amount is termed as premium.

• Book Value
Book value is the balance sheet value of shares. The formula to calculate the book value is as follows;

Paid Up Capital + Reserves and Surplus – Any Loss / Total Number of Equity Shares of the Company

• Market Value
When the company is listed on the stock exchange, the price at which the shares of the company are traded is termed as the market value of the shares. The stock market value would differ with the fundamental value of shares because in both the cases different sentiments affect the stock value.

• Fundamental Value
Fundamental value or intrinsic value of the shares is determined on the basis of the fundamentals of the company. This value is mostly required during mergers and acquisitions.

The above mentioned are the different types of prices of equity shares. When you make an investment in equity shares, you purchase the shares from the stock market at market value. If you are looking to make an investment in equity shares, you may seek help from a well-established broker like IndiaNivesh Ltd. who can help you make an investment in shares at the right valuations.



Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


ULIP vs Mutual Funds – Which Investment gives you better returns?

With increasing disposable income at hand and awareness of financial planning, more and more people are considering to invest their savings for a better and secured future. This has given rise to numerous financial products in the market. Today you will find a variety of financial instruments available in the market which offer promising returns. Selecting one or few options out of them can be a daunting task. Moreover, making the right choice of financial instrument is also important because you are putting in your hard earned income in these investment avenues and want your money to grow over time. To assist you with money investment tips, we have brought to you two of the popular investment products that have given good return to the investors over a span of time. They are Unit Linked Insurance Plans and Mutual Funds. In this article, you will understand the basic concepts of ULIP and mutual funds, ULIP plans vs. mutual funds, and much more.Let us begin by first understanding what is ULIP? What Is ULIP?Unit Linked Insurance Plan is a financial product that offers insurance policy along with investment in different investment avenues. The companies that provide ULIPs bifurcate your money into two parts. Some amount of money is used to provide you with the insurance policy and the remaining amount of money acts as an investment. As an investor, you can generate returns with the money invested by the company. The money is invested in debt instruments, equities, bonds, etc. The meaning of ULIP must have clarified every individual’s doubt about why should I invest in ULIP. Let us now understand what are mutual funds?What are Mutual Funds?Mutual Funds are the most popular investment option among investors. The mutual fund companies collect money from different investors and pool them to invest in various investment classes such as stocks, bonds, money market instruments and other assets. The mutual funds hire dedicated fund managers who look after all the investment decisions on your behalf. Thus, a mutual fund gives you access to a professionally managed portfolio making it an ideal choice for investors who do not know much about investing. All you need to do is, choose a mutual fund scheme depending on your financial goals and rest will be taken care of by the fund house. The mutual fund company structures and maintains your portfolio in a way to match your investment objectives. After understanding the meaning of both investment options, let us now learn about the difference between ULIP and mutual fund.Difference between ULIP and Mutual Fund / ULIP vs. mutual fund• When you buy a mutual fund, the motive is solely investment. On the contrary, when you buy ULIP, it gives you insurance cover and also acts as an investment.• When you wonder why should I invest in ULIP, the answer is simple – In case of ULIP, you are eligible for a deduction from your taxable income as per section 80C of the Income Tax Act. Whereas, in case of mutual funds only Equity Linked Saving Schemes (ELSS) are eligible for tax deductions.• Most mutual funds are liquid in nature. They can be withdrawn within a year. However, 1% of the fund value is deducted as exit load. On the other hand, ULIP is not so liquid in nature. Their liquidity is restricted due to a minimum lock-in period of 5 years.• The returns in mutual fund vary depending upon the performance of the stock market and risk factor. The mutual funds which have higher exposure to equity can generate higher returns because of the higher risk. Mutual funds with exposure to debt market give slightly lower returns. On the other hand, the returns from ULIPs are lower in comparison to mutual funds. This is because ULIPs provide insurance cover along with an investment avenue.• ULIPs offer insurance plans that cover the life of the policyholder and in case of an unfortunate event, it gives the assured sum of money to the policyholder’s family. But in the case of a mutual fund, there is no such insurance cover.• When a comparison is made between ULIP plans vs. mutual funds, it is important to consider the expenses. The expenses in ULIPs are higher in comparison to mutual funds. This is because, in the case of mutual funds, SEBI has capped the total expense ratio to 2.25% . No such limit exists for ULIPs.The above mentioned points suggest ULIP vs. mutual fund differences. Investors often have a question in mind i.e. why should I invest in ULIP or mutual fund. Well, to solve this doubt, we list down certain points that will help investors in taking the right investment decision.When You Can Invest In Mutual Funds• When the time horizon is short term or medium term.• When you want to invest in a highly liquid asset.• When you have a good risk appetite.• When you already have an insurance policy in place.When You Can Invest In ULIPs• When your investment horizon is for the long term.• When your risk appetite is low.• When your aim is to save a good amount of tax.• When you want insurance policy along with the investment. Therefore, before taking any investment decision about ULIP vs. mutual fund, you must consider the above mentioned points. You can even purchase these plans from a reputed broker like IndiaNivesh Ltd. They can further assist you in the money investment tips and can guide you on various investment options available to you.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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What is SIP & How does SIP Investment Work in India?

What is SIP?Systematic Investment Plan (SIP) is a simple and convenient method for investing in mutual funds. It provides a way of investing a fixed amount of money in any particular scheme of mutual fund at a pre-defined regular interval of time. If you still wonder what is SIP or what is sip in mutual fund; it can be simply explained as a planned tool for investment in which a particular amount is deducted from the account of the investor and is invested in the mutual fund scheme chosen by the investor. The time interval at which the money is being invested in the mutual funds can be daily, monthly, quarterly or half-yearly.Among the mutual fund investors, SIP has become very popular gradually because of the investing discipline it instills in an investor. Moreover, you do not need to worry about the volatility in the market and the timing the market when you are investing through SIP mode. You can make an easy entry into the investment market by starting a SIP. It is always advisable to start your SIP investment at an early age to reap the benefit of power of compounding. Perks of SIPNow that you know what is SIP or what is SIP in mutual fund, let us have a look at the few perks of an SIP investment. Rupee Cost Averaging This is one of the best features of SIP investment. SIP is a “way” of investing in a mutual fund in a disciplined manner such that irrespective of the market situation, one keeps investing a particular amount of money at a predefined date. So, if the market is high, you would get lesser number of units and vice versa. In this way, you eliminate the concept of timing the market and keep investing irrespective of the market situation. Thus, the average cost of investing becomes lower than bulk investing at any point in time, because you invest when the market is high as well as low and thus the average cost of units gets spread over time. This helps in smoothening out the short-term fluctuations in the market for the portfolio. Power of compounding If you continue your SIP investment for a longer period, you will start earning returns on the returns of your investments. This can help you accumulate a healthy corpus over the long term Time- saving investment option SIP investment is a time- saving option and if you are choosing to carry out all the procedure online, it is even more time saving and convenient. Stress- free Since the market fluctuations do not hamper SIP investment it is a stress- free option for the investors. Flexible and affordable SIP is a flexible and affordable investment option as the minimum amount to start a SIP is Rs.500 and you can go on increasing your investment as your income increases with time. Also, there are no charges for starting or stopping a SIP investment. Now since we have discussed in length about what is sip investment, let’s take a real-life example to see how SIP can be used to achieve different financial goals: Rohit, a 33-year-old software engineer by profession who lives with his wife and a son. The two most important goals for Rohit are: to save for his son’s higher education and retirement. Rohit has been investing in conventional products like Bank Fixed Deposits in order to achieve these financial goals. But somehow, Rohit realized that his earnings from the FDs may not be enough for him to achieve his financial goals. The major cause of this shortfall is inflation. The real return he gets on his investments after deducting the inflation rate is very low. So, what should be Rohit’s approach in order to get high returns but without being affected by the fluctuations in the market? One of the good options here is to invest in an equity mutual fund through a SIP. This will help him in achieving his long-term financial goals and will also induce financial discipline into his life. Now, let us have a look at how does mutual fund SIP work and how does SIP work in India. How does SIP work? As said earlier, SIP functions on the principle of regular investments. Now the question arises how does SIP work in India? By starting a SIP, you are investing a defined quantity of money into mutual funds at pre-defined intervals. Your savings account will be debited with that particular amount of money for your SIP on your instruction. After the payment of the SIP is done, the AMC, Asset Management Company or the Mutual Fund house shall assign you with a particular number of units from the selected mutual fund scheme of yours. This assignment of units depends on the NAV or the Net Asset Value for that particular day of the scheme which you have chosen. As you go on paying the installment amount for SIP, you go on adding more units of your scheme. When the market fluctuates, i.e. when the market is up you get less units for your money paid for SIP whereas more amounts of units can be purchased when the market is down. A major feature of SIP is rupee cost averaging. With help of a SIP, you can lower down your investment’s average cost and risk reduction for your investment can be possible by wisely spreading the price of your purchase over time. How to start SIP investment? We have answered what is SIP and what is SIP investment. But, before you actually start investing in SIP, you need to ascertain important things like your financial goals, tenure of your investment, your risk appetite, etc. First, you have to decide about your long-term financial goals. The next important step is to decide on the timeline i.e. by when you would need money to achieve these goals. This timeline once decided will be the tenure for which you will be investing in a SIP. Then, the next vital step is to decide on the amount of money to be invested. You can use a SIP calculator available online to find out the amount of money you need to invest regularly to achieve your goals. Finally, when the amount and tenure are all decided, you can go ahead and consult financial experts to know about the various mutual fund schemes available and choose an appropriate one for you. In the next step, you need to submit your KYC. If the online method of submission is being selected then you can submit the details digitally as well. Mandatory documents like PAN card, address proof, and an identity proof need to be submitted along with the KYC (Know your Client) form. Post this, you will have to complete the IPV procedure i.e. In-person verification. You can again do this in two ways i.e. by visiting the office and submitting the necessary documents or by attending a video conference call using a webcam. This is a part of the KYC process for authentication. Once your KYC is complete, you need to submit the mutual fund application form along with the cheque of your investment amount and the SIP form at the nearest office of a mutual fund house, distributor or an agent. Moreover, you can start your own SIP online as well. You can get details on all plans and schemes on websites like IndiaNivesh and you can easily start the SIP online, provided your KYC is already done. Else, it needs to be completed first, before starting to invest. SIP is a great and extremely convenient way to start investments in mutual funds. Once you completely understand the basics, you can easily realize your different financial goals with help of SIPs.     Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Cost Inflation Index - Meaning, Calculation & Benefits

    Inflation is an economic term and referred to the continuous rise in the price of goods and services, thereby reducing the purchasing power of the money. The pinch of inflation is felt by all sections of the economy, be it, the consumers, investors, and the government.  And, even though it increases the cost of living, inflation is a necessary evil and desirable for the growth and development of the economy. For the reason of inflation, it is only fair to pay more for your goods like comb and brush over the years due to an increase in the price. For the same reason, it is unfair to pay capital gains tax on your assets without taking into account the impact of inflation on the value of the asset. Cost Inflation Index(CII) is the index to calculate the increase in the price of assets year-on-year due to the impact of inflation. What is the Cost Inflation Index? Cost Inflation Index or CII is an essential tool for determining the increase in the price of an asset on account of inflation and is useful at the time of calculating the long-term capital gains on the sale of capital assets. It is fixed by the central government and released in its gazetted offices by the Ministry of Finance every year. Capital gains are the profits arising from the sale of assets like real estate, financial investment, jewellery, etc. The cost price of the asset is adjusted taking into account the Cost Inflation Index of the year of purchase and the year in which the asset is sold, and the entire process is known as Indexation. Cost Inflation Index Calculation The cost inflation index calculation is done by the government to match the inflation rate for the year and calculated using the Consumer Price Index (CPI). Cost Inflation Index India for the financial year 2019-20 has been set at 289. Change of the base year for the Cost Inflation Index The cost inflation index base year was changed in the Union Budget 2017 from 1881 to 2001. The base year was changed by the government to enable accurate and faster calculations of the properties purchased before April 1, 1981, as taxpayers started to face problems with valuations of older properties. The base year has an index value of 100, and the index of the following years is compared to the index value in the base year to determine the increase in inflation. With the change in the base year, the capital gains and tax burden has reduced significantly for the taxpayers as it now reflects the inflated price of the asset realistically. The current Cost Inflation Index Chart for each year is as under- How is the Cost Inflation Index (CII) used in calculating capital gains To calculate the capital gains on your assets the purchase price of the asset is indexed by the cost Inflation Index using the formula below- Indexed cost of the asset at the time of acquisition = (CII for the year of sale/ CII for the year of purchase or base year (whichever is later))*actual cost of acquisition If suppose you purchased a flat in December 2010 for Rs 42 lacs and sold in Jan 2019 for Rs 85 lacs. Your capital gain from the sale of the flat is Rs 43 lacs. The CII in the year in which the flat was purchased is 148, and the CII in the year the flat was sold in is 280. The purchase price of the flat after taking into account the Cost Inflation Index is = (280/148)*Rs42 lacs= Rs 79. 46 lacs  This is the indexed cost of acquisition. Your long-term capital gain after taking indexation into account is Rs 85,00,000- Rs 79,45,946 = Rs.5,54,054. Long-term capital gains on the sale of property are taxed at 20% with indexation benefit. So, your tax liability, in this case, would be- 20% of Rs 5, 54, 054= Rs 1,10,810 Without indexation benefit, the capital gains are taxed at 10%. In this case, the capital gains would be- Sale price of the flat - purchase price of the flat = Rs 85,00,000 – Rs42,00,000 = Rs.43,00,000.  The capital gains tax without indexation benefit will be 10% X Rs 43,00,000 = Rs.4,30,000. Thus, indexation helps reduce the long-term capital gains and reduce the overall tax burden for the taxpayer considerably. Indexation benefit can be used for investments in mutual funds, real estate, gold, FMPs, etc. but is not applied for fixed income instruments like FDs, recurring deposits, NSC, etc. Few important tips to remember about the Cost Inflation Index- If you receive an asset as a part of the will, then in such the CCI for the year in which it was transferred will be considered and not the CCI of the purchase of the asset Indexation benefit for the cost of improvement of the asset is the same as the cost of improvement of the asset. Cost of improvement incurred before 1981 to be ignored. CONCLUSION Cost Inflation Index is an important parameter to be considered at the time of selling long-term assets as it is beneficial for the investors. Reach out to our experts at IndiaNivesh for any queries about capital gains arising from the sale of assets for correct guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Dematerialisation of Shares – Meaning, Process & Benefits

    The online platform has revolutionised the way we live. Whether it is transacting, connecting with a loved one, getting updated about the happenings in the world, everything can be done online. When it comes to investments, the online platform provides ease and convenience. Investment in shares and share trading is a prevalent activity undertaken by many investors. They invest their money in the stock of a company with a view to earn profits when the stock value rises. When shares are purchased, share certificates are issued in physical form containing the details of the investor and the investor. However, these physical share certificates are inconvenient, and so the concept of dematerialisation has been introduced. Do you know what it is? What is dematerialisation? Dematerialisation of shares means converting physical shares and securities into an electronic format. The dematerialised shares and securities are, then, held in a demat account which acts as a storage for such shares. Dematerialised securities can then be freely traded on the stock exchange from the demat account. How does dematerialisation work? For the dematerialisation of securities, you need to open a demat account with a depository participant. A depository is tasked with holding shares and securities in a dematerialised format. As such, the depository appoints agents, called, Depository Participants, who act on behalf of the depository and provide services to investors. There are two licensed depositories in India which are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). Need for dematerialisation of shares Dematerialisation of securities was needed because it became difficult for depository participants to manage the increasing volume of paperwork in the form of share certificates. Not only were there chances of errors and mishaps on the part of the depository participant, but physical certificates were also becoming difficult to be updated. Converting such certificates into electronic format frees up space and makes it easy for depository participants to track and update their investor's stockholding. Benefits of dematerialisation for investors As an investor, you can get the following benefits from dematerialisation – You don’t have to handle the physical safekeeping of share certificates. Since your investments are converted in electronic format, you can easily store them without the risk of theft, loss or damage You can access your online demat account and manage your investments from anywhere and at anytime The charges associated with the demat account are low. Depository participants change holding charges which are minimal and you don't have to pay any stamp duty on dematerialised securities Since no paperwork is required to be done, the transaction time is considerably reduced Given these benefits, dematerialisation proves advantageous. Nowadays, the practice of holding physical securities has become almost obsolete and buying through a demat account has become the prevailing norm for investors. How to convert physical shares to demat? To convert physical shares to demat, the following steps should be followed – You should open a demat account with a depository participant. A depository participant can be a bank, financial institution or a stockbroker who is registered as a depository participant with the two licensed depositories of India You would then have to avail a Dematerialisation Request Form (DRF) from the depository participant and fill the form Submit the form along with your share certificates. The share certificates should be defaced by writing ‘Surrendered for Dematerialisation’ written across them. The depository participant would, then, forward the dematerialisation request to the company whose share certificates have been surrendered for dematerialisation. The request should also be sent to Registrar and Transfer (R & T) agents along with the company The company and the R & T agents would approve the request for dematerialisation if everything is found in order. The share certificates would also be destroyed. This approval would then be forwarded to the depository participant The depository would confirm the dematerialisation of shares and inform the depository participant of the same Once the approval and confirmation is complete, the shares would be electronically listed in the demat account of the investor Buying securities in a dematerialised form If you are looking to buy stock in a dematerialized form, here the simple steps that you can take for the same – Choose your broker for buying the securities and pay the broker the Fair Market Value of the securities that you want to buy The payment would be forwarded by the broker to the clearing corporation. This would be done on the pay-in day The clearing corporation would, then, credit the securities to the broker’s clearing account on the pay-out day The broker would then inform the depository participant to debit its clearing account and transfer the shares to the credit of your demat account The depository would also send a confirmation to your depository participant for the dematerialisation of shares in your account. The dematerialised shares would then be reflected in your demat account You would have to give ‘Receipt Instructions’ to your depository participant for availing the credit of shares in your demat account. This is needed if you hadn’t already placed a Standing Instruction for your depository participant when you opened your demat account. Similarly, for sale of dematerialised shares, the process is opposite. Trading in stocks in a dematerialised format is simple, quick and convenient. It has also become the practice of the current market. So, if you want to buy or sell securities, open a demat account and start trading in dematerialised securities. Should you have any doubts, get in touch with the team at IndiaNivesh who will look into your requirement and lead you towards a quick resolution.    Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • High Dividend Mutual Funds

    Dividend mutual funds are a type of mutual fund that pays a regular dividend to the unitholders of the mutual fund scheme, thereby creating a regular source of income for them. The investment strategy of the fund manager is to invest in a basket of companies that have a steady flow of income and promise to pay periodic payment to the investors. Some investors prefer a regular source of passive income from their investments. Mutual fund schemes that offer a high dividend are a popular choice for such investors. The frequency of payment of dividends is decided by the fund manager and is usually fixed. Dividends can be paid daily, monthly, quarterly, six-monthly, or yearly, and the frequency of payment is mentioned beforehand. However, there is no guarantee on the rate and amount of the dividend to the investors and the payment of dividend is subject to the performance of the fund. There are 2 types of dividend mutual funds based upon the asset class that they invest in. 1. Dividend Yielding Mutual Fund (Equity) • Mutual fund schemes which invest more than 65% of their corpus in equity shares of companies • Like any other equity scheme, they have the potential for higher returns, but also carry a higher risk • Investors should invest in these schemes with an investment horizon of medium to long term 2. Dividend Yielding Mutual Fund (Debt) • Mutual fund schemes which invest more than 65% of their corpus in debt instruments of government and corporations like treasury bonds, commercial papers, etc. • These funds carry low risk and provide average returns to investors • Interest received from the various instruments is paid as a dividend to the investors• Investors should invest in these schemes with an investment horizon of short to medium term Tax treatment for dividend mutual funds Till now, dividend income received by the investor used to be recorded under the income head of “Income from other sources” and such income was tax-free in the hands of the investor. However, as per the Union Budget 2020, the DDT is now abolished for companies and mutual funds. From April’20 onwards, any dividend received above Rs 5000 will be taxed in the hands of the investor. It will be taxed as per the individual tax slabs for both equity and debt schemes. Only debt investors who fall in the lower slabs of 10% and 20% will pay lesser taxes on dividends. For all the others, the taxation would be higher going forward. Why should investors invest in high dividend mutual funds? Dividend mutual funds offer unique advantages to the investors, especially when the macroeconomic condition of the country is weak; these investments provide the reliability of income to investors. The benefits of dividend mutual funds which should be kept in mind while investing in such funds• Fund managers of dividend mutual funds invest in companies which can pay steady dividends and even if there is a slowdown in the economy, as companies do not want to send any negative signals, they avoid curtailing payment of dividends, thus making them less volatile than other funds.• Overall returns from these funds are less affected as compared to other funds as the dividends provide a hedge against market volatility.• In a low-interest rate regime, investors looking for a higher consistent income can opt for dividend mutual funds. Disadvantages of a dividend mutual fund scheme • Returns generated by dividend mutual fund schemes are lower as compared to growth schemes in case of rising markets• These funds are not suited for aggressive investors looking for higher returns from their investment• Moreover, with the abolition of Dividend Distribution Tax (DDT), investors in the higher tax-bracket will have to pay higher taxes on the dividend income. Role of dividend mutual funds in a portfolio Invest in dividend mutual funds with an investment horizon of 7 to 10 years for optimal returns. Investment in such funds should be a part of your strategic asset allocation and to lower the volatility of the overall portfolio. Aggressive investors can allocate less than 10% of their portfolio in such funds. Conservative investors, on the other hand, can allocate a higher percentage to these funds. Essential things to keep in mind while investing in dividend mutual funds • Conservative investors looking to invest in dividend funds should invest in large-cap funds, preferably of blue-chip companies that pay a higher dividend. Investing in companies with a higher proportion in mid & small-cap companies will increase the risk of the investment, thereby defeating the purpose of investment• Invest in a fund which has been in existence for some time and witnessed a few market cycles• Avoid investing in a fund with a small corpus to minimize risk as few wrong investment calls can significantly hamper returns• The expense ratio plays a vital role in determining the overall returns from a scheme. Choose funds with a lower expense ratio   CONCLUSION Investing in high dividend mutual funds is a good option if you are looking for a regular income through dividends. Consult our experts at IndiaNivesh to help you guide through the allocation of funds in these schemes as per your investment horizon and risk profile.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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