One investor diversifies his allocation in mutual funds by investing in 2 or 3 equity oriented balanced funds dividend payout option and another by selecting equity and debt funds dividend payout option.
What happens after one year of investing? If whenever dividends are declared, equity oriented balanced fund dividends are tax free in the hands of investor.
In effect even the debt portion of the fund (average 35%) also becomes tax free which otherwise is taxed in pure debt fund.
This makes a compelling reason to select good equity oriented balanced funds to diversify than to try and do it on your own by investing separately in equity and debt funds.
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