InvestorQ : Which mutual fund is good to invest after DDT is removed? Growth or Dividend plans?
Juvina Maggie made post

Which mutual fund is good to invest after DDT is removed? Growth or Dividend plans?

Answer
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Anjana Aiyar answered.
8 months ago


Budget 2020 came with tremendous expectations with respect to tax relief, exemptions, and deductions. In one of the proposals, it proposed to abolish the dividend distribution tax (DDT). Income from dividends is taxable in hands-of individuals as per the proposal.

This move can prove beneficial for debt fund investors belonging to the lower tax bracket. For instance, If dividend earned is less than Rs 5,000, mutual fund will not attract tax but if it exceeds Rs 5,000, the tax will be charged at 10%. Thus, according to the budget announcement, MF with dividend plans will attract lesser growth than growth plans.

If you consider equity funds, investors are expected to get more benefits in growth plan than dividend plans. This is because, earnings from dividends will be taxed as per tax slabs, if you choose growth equity schemes, you are liable to pay long-term capital gains of just 10%.

Moreover, if you belong to a higher tax-paying slab of 20% or 30%, you will be more benefited by continuing your investment in growth plans. Before the budget, DDT for equity-oriented funds was 11.64% (which includes surcharge and cess).