Does the dividends from equity funds attractive as there is no DDT

I have a couple of related questions, request your advice on them below. Equity Mutual funds like HDFC Prudence and ICICI Balanced have started giving monthly dividends since 2016. Does the tax-free dividend yield makes them more attractive as compared to MIP's where dividend is subject to DDT? Further are dividends in excess of 10 Lakhs from Equity mutual funds still exempt from tax after the latest amendment in 2016? i.e., does the amendment apply only to shares or is it applicable to equity mutual funds as well?

Jul 7, 2017 by Sameer, Mumbai | Mutual Fund

Thanks for writing to Advisorkhoj. Here you go with the answers for your queries -

1. HDFC Prudence Fund and ICICI Prudential Balanced Funds are not equity mutual funds but equity oriented mutual funds which are popularly called as balanced funds.

2. Dividends received from any mutual fund scheme in your hand is totally tax free. However, debt funds and MIPs have to pay dividend distribution tax (DDT) @28.84% which is cost to the scheme. The equity funds do not pay DDT and therefore, the schemes do not have any expenses on account of declaring/ paying the dividends. Therefore, yes you can say the receiving a dividend from equity and balanced funds are attractive as the scheme is not incurring any expenses on this account.

3. Tax on dividends exceeding Rs 10 Lakhs applies on dividends received from equity shares and not on dividends received from mutual funds. The tax rate on dividends received in excess of Rs 10 Lakhs from equity shares is 10%.

Hope the above was helpful.

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