Dividend
Definition
A portion of a company's profits distributed to shareholders. In mutual funds, dividend option means periodic payouts from the fund's profits. Note: 'dividend' option in MFs was renamed to 'IDCW' (Income Distribution cum Capital Withdrawal) by SEBI.
Why is Dividend Important?
In the context of wealth creation and investing in India, Dividend is a fundamental concept. Whether you are investing in mutual funds via SIPs, fixed deposits, or retirement schemes like PPF and NPS, this metric helps evaluate potential returns and risks. The power of compounding and market volatility make it essential to track this indicator for any long-term portfolio.
Investors are encouraged to use specific investment calculators to project the future value of their corpus. Understanding this term enables better asset allocation, inflation protection, and consistent progress toward your ultimate financial goals.
What is a Dividend?
A dividend is a portion of a company's profits distributed to its shareholders. In India, companies declare dividends on a per-share basis (e.g., โน15 per share) and are approved by the board of directors and shareholders at the Annual General Meeting.
Key Dividend Metrics
| Metric | Formula | What It Tells You |
|---|---|---|
| Dividend Yield | (Annual Dividend / Share Price) ร 100 | Income return on stock price |
| Payout Ratio | (Dividends / Net Profit) ร 100 | What % of profits are distributed |
Dividend Taxation in India (Post-2020)
- Dividends are taxable in the hands of the investor at their income tax slab rate
- TDS of 10% deducted if annual dividend exceeds โน5,000
- Dividend from mutual funds is also taxable at slab rate