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Don’t Let MF Dividends Lure You

Monday, May 14, 2012
Anand Birai

If the figures of dividends on your mutual funds tickle you, be cautious of the reality behind it before you jump on to invest in funds on basis of the dividends that they pay you. For the month of April 2012, several equity funds announced the dividends which look attractive. Birla Sun Life MNC Fund (Dividend option) announced dividend as high as 50%. Certainly, it looks impressive like many other funds have announced high dividends.

In the dividend option categories, IDFC Sterling Equity Fund announced dividend of 14%, Birla Sun Life Frontline Equity Fund Plan-A announced 10%, ICICI Prudential Top 100 Fund also 10%, Tata Ethical Fund – 20% and Tata Equity P/E Fund (Trigger Option B 10%) has given 20% dividend.

There is a major difference in the dividend which a company pays to the shareholders and what the mutual funds pay to the investors. In the case of a company, the dividend is paid from the profits from business operations of the company whereas the mutual funds pay dividends from valuations of the funds. Hence, the difference is that the funds pay your capital back to you in the form of dividend.

The result of the dividend payout is erosion of investment value of your fund. If you select the dividend payout option, you don’t gain in real terms as your Net Asset Value (NAV) decreases by the same rate. If you opt for dividend re-investment option, your returns on the funds will still be equal to what the Growth option of the fund will be earning for you. On long term basis, the advantage of buying extra units from dividend reinvestment will also be equalized by the trends of markets when at some points you would end up buying units at higher NAV.

Still, the dividend payout option can be useful for the investors who are retired and looking for a regular stream of income over the period of time.

Hence, it is not the dividend on MFs which should affect your decision while investing but the funds’ performance, its portfolios, investment objectives and fund manager’s performance.

IDFC announces change in minimum subscription amount under its scheme  
IDFC MF has announced to change the minimum subscription amount for IDFC Super Saver Income Fund-Short Term Plan D, with effect from 7th May 2012. Accordingly, the revised minimum subscription amount will be Rs. 15 crore in multiplies of Re. 1.

Daiwa announces change in key personnel
Daiwa MF has announced the appointment of N. Sethuram Iyer as the Chief Executive Officer (CEO) of the AMC, with effect from 1st May 2012. Prior to taking over this role, he was the Chief Investment Officer (September 2008 to April 2012) of the AMC. Moreover, Piyush Surana has ceased to be the Chief Executive Officer (CEO) of AMC, effective from 30th April 2012.

Deutsche announces change in minimum investment amount for its scheme  
Deutsche MF has announced to change the minimum investment amount for DWS Premier Bond Fund, an open ended debt scheme, with effect from 9th May 2012. Accordingly, the revised minimum investment amount will be Rs. 5 crore in multiplies of Re. 1 thereafter.

HDFC announces change in fund management responsibilities
HDFC MF has announced the change in fund management responsibilities, with effect from 10th May 2012. Accordingly, Miten Lathia has been appointed as the Co-Fund Manager of HDFC Capital Builder Fund along with Chirag Setalvad. Furthermore, Miten Lathia will be re-designated as Fund Manager for Equities. Lathia has ceased to be the Fund Manager for Overseas Investments. Rakesh Vyas, currently Senior Equity Analyst, will be re-designated as Fund Manager for Foreign Equities.

Baroda Pioneer revises asset allocation pattern for its scheme
Baroda Pioneer MF has announced to revise the asset allocation pattern of Baroda Pioneer Short Term Bond Fund, with effect from 15th June 2012. Accordingly, the scheme will invest 65% to 100% of assets in debt and money market instruments with a residual maturity of upto 24 months. On the other side, it will invest upto 35% of assets in debt instruments with a residual maturity greater than 24 months and less than 60 months. Investor will have an option to exit without paying any exit load between 11th May 2012 and 10th June 2012.

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