Some equity mutual funds earn dividends too; here's why it may not be credited to your bank account — why it happens?

Equity mutual funds invest in shares, which may generate dividends. Investors can choose either a growth or dividend plan. Here's when the dividend is not credited to an investor's bank account. 

Equity mutual funds invest in shares of listed companies that may pay dividends to their shareholders. So, when a company in a mutual fund’s portfolio declares a dividend, the fund receives that dividend, but that does not necessarily mean the amount will be credited separately to investors' bank accounts.

This is because of the type of mutual fund option you have chosen. When you are making an investment, you have to choose between a growth or dividend plan, which is also known as income distribution cum capital withdrawal (IDCW).

These two options represent different ways in which income generated by a mutual fund is distributed to investors. However, it's important to know that not all mutual funds earn dividends.

Equity funds may receive dividends from stocks they hold (only if a company declares it), while debt funds earn interest or coupon income from their investments as they invest in bonds and other fixed-income securities.

When is dividend not credited as money?

When you are investing in stocks, dividends declared by some companies you hold are generally credited to your primary linked bank account. But the same process does not apply when you invest through a mutual fund's growth plan.

Under the growth option, the returns generated by the mutual fund scheme are not distributed separately to investors but remain within the scheme.