When stocks pay dividend, it essentially means that the company is sharing profit with the shareholders, but in the case of Mutual Funds paying dividend, they actually return a part of your capital back to you.
Many people get trapped by the high dividend paying mutual fund schemes without understanding the truth behind it. Distributors mis-sell investment schemes to investors on wrong knowledge. This is especially true in the case of equity-linked saving schemes (ELSS), where large dividends are given out as year end approaches and investors are lured into investing in these, based on a promise of quick return on capital.
