Redeeming investments partially is more tax-efficient than dividend option

Systematic withdrawal is more tax efficient not only for equity investments but also in the case of debt funds. The latter attracts a 28.33 per cent (including cess and surcharge) DDT.

Priyesh Patel approached his mutual fund distributor to change the dividend option in a balanced fund to the growth option. Patel, who has been investing in the fund for about four years, was advised to stay put. 

The distributor’s reason: Changing from dividend to growth option will amount to the redemption of old units, which will attract tax. To shift to the growth option, the investments will have to be redone. In any case, the distributor explained, the tax on redemption as well as on dividend is the same – 10 per cent.

While the distributor is correct on the