Skip to main content

Mutual fund dividend options

Mutual Funds growth schemes may have provided higher returns than their dividend counterparts during the bull run. But not any more! Dividends paid in the past five years have not only saved investors from the market tsunami, but also ensured higher returns

Mutual fund (MF) houses and their distributors often use dividends as a carrot to lure investors to their schemes. Dividend, in common parlance, is understood to be a share in the profits of the company in which the investor has a stake (shareholding). However, in case of an MF scheme, dividend is nothing but a part of the capital appreciation of the investment returned back to the investor in piecemeal. It is for this reason that the net asset value (NAV) of a scheme stands reduced to the extent of dividend declared by the MF scheme.

Dividend and growth are the two basic options that an investor can choose from while investing in an MF scheme. Unlike the dividend option, growth invests any appreciation of initial investment back into the fund and allows it grow further instead of repaying to the investor. It is for this reason that returns generated under the growth option have been higher than those from the dividend option, especially in the bull run. But not any more! The changing tides in the market have made ‘dividend’ an attractive investment option as compared to a growth one. An analysis of returns for the period January ‘04 - December ‘08 of nearly 64 equity diversified schemes reveals so. Returns under the dividend option of more than 60% of them have been higher than those of the growth option. Thanks to the regular dividend payouts, investors have managed to save some of their capital appreciation from the market tsunami. The schemes considered for this analysis are those that have been in existence as on January ‘04 for both the dividend as well as the growth options.

Ignoring the entry loads, we have assumed the returns generated under both the options — for the selected equity schemes — for an initial investment of Rs 1,000 on January 1, 2004. We have also assumed that the investor has held onto the investments till December 2008 — covering the entire period of bull-run and even the disasters unfolding thereafter. All the dividends declared in the five-year period (January ‘04 - December ‘08) have been taken into account to arrive at the total value of the initial investment of Rs 1,000 as on January 1, ‘09.

In this list of schemes where returns from dividend option supercede those of growth ones, Sahara Taxgain and SBI Magnum Taxgain ‘93 are in the forefront . Having paid a total dividend of over 500% in the last five years, their returns under the dividend option are 3.4x and 2.4x higher vis-à-vis their growth ones. This is followed by DBS Chola Growth and UTI Master Value whose returns from dividend option exceed those of the growth option by 2x and 1.6x, respectively. Investors would however do well to note that declaring dividends is the sole discretion of the fund house and the same is never guaranteed. In fact, in the light of the current market situation, only a handful of equity schemes have declared dividends so far in 2009. Dividends should thus not be construed as a decisive factor for selecting a mutual fund investment.

Past performance and the risk appetite of the scheme are the major criteria for selecting a right MF scheme. An investor would also do well to take into account the number of years for which a scheme has been in existence and measure its performance at both the highs and lows of the market.

Popular posts from this blog

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now