Debt/Liquid fund – Dividend option

POSTED BY Karthik ON August 27, 2012 1:17 pm COMMENTS (4)


I want an alternative for FD, since the post-tax return is just ~6.5% (30% tax slab).
I am aware that Debt/Liquid fund will solve the purpose. I dont want to take the pain of calculating the tax and paying it. So, I want to go for Dividend option where the Dividend Distribution tax is automatically deducted. Am I right in thinking that there is no other tax to be paid in case of Dividend option Debt fund?

How much is the Dividend Distribution tax? what will be the approx post-tax return?

Which is the best fund(s) for me in HDFC or ICICI AMCs? (Please suggest me 2/3 funds from which I can choose)

This money is not linked to any goal. I just want to park my idle money for a period of 2 or more years.


I have a PPF account where I contribute the maximum allowed.
I already invest in Equity mutual funds also (SIPs).)

4 replies on this article “Debt/Liquid fund – Dividend option”

  1. Dear Kartik, if you are going to keep this money for 2 or more years in a debt funds, Dividend option is not good for you. Please invest in Growth option. It ‘ll be far better for you in terms of actual tax liability of just 10%.



    1. Karthik says:

      Thanks Sundeep and Ashal. after some analysis, I am planning to go for SBI Dynamic Bond fund.
      Sundeep, I don’t want to go for the MIPs with Equity exposure, since I want to take least risk for this fund.

      1. Dear Karthik, thanks for the clarification. Please move ahead with your choice & start investing.



  2. sundeep says:

    You can invest in reliance or dsp black rock monthly income plans(monthly dividend). they invest 80-100% in debt and 20-0% in equity depending on market conditions. I have got good returns in it and all dividend are tax free. You can also go for HDFC MIP which is also ranked one

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