Dividend payout in mutual funds plays an important role, especially when it comes to liquid funds. As an investment seeker, it is crucial for you to understand the concept of dividend payout in order to make better investment decisions. Dividend payout provides a constant income stream and acts as an attractive feature if you are seeking stable returns in the short term. Discussed here are the significance of the dividend payout concept in liquid funds.
- Stable income generation
Liquid mutual funds are a type of debt fund that primarily invests in short-term debt instruments such as certificates of deposit, treasury bills, and commercial papers. Unlike other types of funds, liquid funds aim to offer liquidity and stability. Opting for the dividend option in liquid mutual funds ensures periodic income from the investible generated by the fund.
- Constant cash flow
Dividend payouts serve as a reliable source of consistent cash flow. This constant cash flow is particularly advantageous if you are someone who depends on investment income to manage daily expenditures.
- Flexibility and liquidity
Liquid funds are highly known for their liquidity, allowing you to redeem your investments instantly without any penalty or exit load. Dividend payouts on liquid funds add an additional layer of flexibility as they permit you to either reinvest your dividends or withdraw them as needed. This feature allows you to maintain your desired level of liquidity while offering steady income periodically from your investments.
- Capital preservation
Liquid mutual funds are designed to preserve capital while offering satisfactory returns. Dividend payouts assist in achieving this goal by distributing the surplus income earned by the scheme without compromising the fund’s primary objective of capital protection.
- Regular income for retirees
Dividend payout is especially beneficial if you are a retiree and depend on investments to meet your living expenses. By regularly investing in liquid mutual funds that offer dividend payouts, retirees can enjoy a steady flow of income, reducing their dependence on fixed deposits and other conventional fixed-income products.
- Reduced volatility
Dividend payouts in liquid mutual funds can help lower the overall volatility of your investment portfolio. By periodically receiving income in the form of dividends, you are less affected by market ups and downs. This offers stability and reduces the impact of any short-term volatility on your investment returns.
- Convenience and simplicity
Dividends in liquid funds are convenient and straightforward. The dividends are automatically credited to your registered bank account, ensuring a smooth and hassle-free experience. This simplicity makes the investment option attractive if you prefer a low-maintenance approach for your investments.
- Potential for capital growth
While the primary goal of liquid mutual funds is capital protection, a few schemes may yield capital appreciation in addition to dividend payouts. This gives you the opportunity to benefit from both periodic income through dividends and potential growth in the scheme’s net asset value (NAV), leading to enhanced overall returns.
Conclusion
Dividend payouts play an important role in liquid mutual funds. They provide high stability, constant cash flow, and flexibility to mitigate short-term life goals. By educating yourself about the concept of dividend payouts, you can better evaluate your investment goals, risk appetite and investment horizon to accordingly make an informed investment decision.