High Dividend Mutual Funds are one of the most popular investment choices these days, these are the investment vehicles which provide positive cash flow and result in growth over a longer period of time.
These funds invest in stocks that pay high dividends; any stocks that do not pay dividends are excluded from the portfolio. In the current market scenario with so much of uncertainty dividend paying mutual funds with good earnings are the right choices to make.
Here are few things to consider before investing in these funds -
- Look for the mutual funds which have given high dividends over a longer period of time.
- Analyze the short term as well as longer term performance of the fund. Short term may be the past year and longer term could be past 5-6 years.
- Make sure that the fund is handled by competent management with good success ratio over past.
- Ideally choose the funds which have less expense ratio, usually a Management Fee of 1% to 1.5% should be considered reasonable.
- Always try to invest in the well settled funds which have given good returns over the longer period of time.
- Try to stay away from new and unproven funds.
Let’s see what are the pros and cons of investing in these funds.
Pros –
- Dividend mutual funds provide a positive cash flow which is a real passive income.
- This income from stocks can be reinvested which provides maximum gains over a period of time.
- Dividend paying stocks are usually the well settled ones and expected to perform better in longer horizons.
- Investing in mutual funds provides diversification compared to individual stocks.
- Your investment is being handled by a professional fund manager.
- You can invest in Systematic Investment Plans which saves you from market ups and down by using the concept of Dollar Cost Averaging.
Cons -
- Mutual funds have a small management fee attached which is an extra expense.
- Some mutual funds may have closed end schemes where you need to pay an amount to get out of the fund.
- Dividend mutual funds are not risk free as they are also subject to the general market ups and downs.
