Weseeking growth. Any productive asset will have some source of return other than a change in price. are part of the return that an equity investor receives.
The question is whetheris enough of a reason to pick a particular option? Not really.
High dividend yield stocks
These make for a tempting selection among listed stocks.yield measures your earning margin from declared assuming you bought the stock today. For example, if the market price of a stock is Rs 100 and it announces a Rs 5 per share, then the yield is 5%. Some investors equate this with annual interest from deposits and see where the post-tax return is higher to decide which is a better option.
To put it in context, theyield of the index is around 1.3% currently. Some of the highest yield companies are those semi owned by the Government or public sector companies. The yield of many such companies is often in the range of 3%-5%, which as you can see is above the benchmark index yield.
helps very long-term investors gain from recurring payouts to be used as income. However, in stocks only for the is not wise. A company can continue to pay a high from accumulated profits, making its yield look good.
But at the same time, if incremental profits are not growing at the same rate, the market price of the share will suffer. Capital losses from price change can often outweighin a year. Remaining invested in such stocks doesn’t make sense.
For example, public sector listed stock GAIL has ayield of 7% or thereabouts which is attractive, but, the capital value or price has fallen 31% in the last year.
is not a sufficient factor to base stock selection on or even to decide the preferred asset class.
This is because, unlike the case of stocks where dividend payout is an additional income originating from the company to its shareholders, for mutual funds dividend payout is basically growth in capital value (including dividend received) being paid out as income. Which is like a withdrawal of your profit rather than an additional income coming to you.
Mutual fund dividends are not relevant
taxation for now makes the option unsuitable, however, even before this change in the last Union Budget, options in were not gainful.
This is because, unlike the case of stocks whereis an additional income originating from the company to its shareholders, for is basically growth in capital value (including received) being paid out as income. Which is like a withdrawal of your profit rather than an additional income coming to you.
The best-case scenario is being invested in a good quality stock with an upward trending earnings growth trend, which also pays out highand bonuses. Always rely on the quality of earnings and will become remunerative over a long period along with the possibility of desired capital growth. In the case of , it’s best to stay away from plans and stick to growth plans where gains accumulate and compound.