How to earn steady tax free income from equity investments?

Written by Amit Agarwal on Mar 9, 2009

With stock market touching new lows every day and still no chances of calling a bottom, investors are hardpressed with choices for their investment decisions.

Even the safe fixed return investments are seeing reduced returns owing to cut in deposit rates. Other avenues such as Debt Mutual Funds, company FDs have safety issues while ULIPs levy heavy charges on the premium paid.

In such cases, there is a scenario wherein investors can choose those stocks which have been paying regular dividend over the years and have reasonably good growth prospects.

And with stock prices at lows, the dividend yield (dividend/market price) of the stock comes out to be rewarding and advantageous too as dividend amount is tax free in the hands of investor.

Investors can also hope for a change in cycle and sell these scrips whenever the market booms and earn substantial capital gains.

Some of the noticeable high dividend yielding stock includes – Indiabulls Sec, Varun Shipping, Coromadel Fertilisers, Bongaigaon Refinery, NIIT Ltd, Chennai Petroelum, Tata Elxsi among host of other stocks.

However, investors should keep an important note that high dividend does not imply that the company is doing well as it can be also interpreted that the company is short of ideas to further deploy the cash and generate further shareholder returns.

Also stocks should be purchased with a mindset to earn capital gains and profits should be booked at levels which the individual seems content with.

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