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For corporate does it make sense to opt for growth option in liquid funds

In the case of investments in liquid / liquid plus by corporates for a short period of time, which option makes sense Growth or Dividend Re-investment option. As dividend distribution tax of 34.608% is deducted on a daily basis, as a corporate they lose the compounding impact of cash flows. Hence, do you think, growth option makes sense?

Sep 9, 2016 by Sucharitha H Athreya, Bangalore  |   Mutual Fund

Yes, growth option makes sense for the sake of simplicity and also if the income of the corporate is less than 10 Crores as the surcharge rate is low.

However, the dividend distribution tax and short term capital gains tax in liquid funds (or for that matter, any fund other than equity oriented categories) in case of domestic corporate, are almost same if the income of the corporate exceeds Rs. 10 Crores.

Please check the rates as follows –

Dividend distribution tax – 30% + 12% surcharge + 3% cess = Total 34.608%

Short term capital gains tax (units held for less than 36 months) - 30% + surcharge as applicable + 3% cess = Total 33.063 or 34.608% (Here, the surcharge at the rate of 7% is levied for domestic corporate unit holders where the income exceeds Rs. 1 Crore but is less than Rs 10 Crores and at the rate of 12%, where income exceeds Rs 10 Crores)

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