As part of their portfolios, mutual fund schemes hold securities. When a scheme makes a profit through these transactions, the fund manager, at times, doles out dividends to the unit holders. A scheme could register gains also on account of dividends announced by the companies whose shares are held under the scheme. Even bond schemes can pay dividends as the debt papers in which the scheme invests pay interest. The mutual fund is selling the shares held in the scheme and distributing the dividends from the profits earned through such a sale.

Source: The Hindu December 29, 2019 17:26 UTC