MF with dividend paying options

[n.ramu]

I have invested some amounts in 4-5 Mutual Funds with all having dividend option.

I have been receiving dividends from time to time but have observed that over the years, the market value of the fund as shown in their statements has reduced considerably.

Net to net, the invested amounts are more or less reduced by the dividend received i.e. there is no actual gain and if I redeem the investments, i shall receive considerably less than what I invested!

So how it is that dividend paying Mf always reduce their present value. If the investments are made by them in good stocks, should not the value actually increase?

Please guide.

also need to know the IT angle. If there is loss on redemption, should I claim as reduction from my income?

please advise me.
thanks

 

[schnappi]

Please tell the MF name. Let us try to analyse why this is the case?

 

[travi]

You have not mentioned the duration of holding.
You have not described how you entered, like lumpsum, SIP or at few random intervals etc

Anyway, first, the dividend is paid after deducting DDT of 30%, dividend distribution tax.
The returns from dividends are therefore not taxable.
If you compare with growth funds, obviously returns will be far higher, bcos the gain is reinvested and that also is compounded.
If you still want to compare, growth funds when redeemed should be adjusted for tax liability correctly.

Next, the performance of the MF also matters and it's type.
Is it a debt or equity based? Or any other

Ideally, from a tax perspective, it's wisely believed that one should use dividends when they're in the 30% tax bracket, else use growth option and redeem periodically once you're out of exit load period.

Also, negative return from principal is not unlikely, if the MF doesn't perform at rate of dividend payout, it will erode the principal amount.