Every time you get dividend from mutual fund companies (other than equity oriented funds ) or make redemption of units , there is a charge of tax on the amount of dividend , which although , payable by the mutual fund companies, is actually charged to mutual fund unit holders. So , to that extent the Net Asset Value get reduced. In other words, it is the unit holder of mutual fund who pay the tax.
DDT for Mutual Fund Planning
Therefore, when one plans for investment in mutual fund, he must give thought on the expense in form of Dividend Distribution Tax . For example, when you are deciding about investment in liquid or money market fund or other debt fund , and you are required to decide whether reinvestment plan is good or growth plan should be chosen, the consideration of DDT is a major factor. Because in case of reinvestment plan, every time dividend is reinvested, DDT is deducted by mutual fund company and deposited with government. So , you ended up paying the DDT time to time. Whereas in case Growth plan, since dividend is not given , but the units keep growing in NAV, the cost of DDT is not borne by the unit holders.
So, the Dividend Distribution Tax rate on Mutual Fund
So, whenever, one invests money , he must give attention whether the nature of fund is equity fund or money market fund or liquid fund or any other kind. For example , if you deploy money in money Debt Fund , you will end up paying 12.5 % of DDT whereas the money market fund is also a kind o debt fund , but the tax rate is 25 % .
Mutual fund invesments plan without DDT is not complete !