Skip to main content

How dividends for a scheme declared

How fund houses declare the dividend for a scheme


Many mutual funds declare dividends at various times. Why




Although mutual funds across all asset classes declare dividends, they are never assured. Also, the capital market regulator, Securities and Exchange Board of India (Sebi) rules state that fund houses must declare dividends out of realisable surpluses, and not just paper profits. In simpler words, if your scheme's net asset value goes up from Rs12 to Rs12.50 purely because the share prices of some of its underlying companies went up, the fund cannot declare a dividend. Your scheme should have actually sold those shares at a profit to be able to declare dividends.


Time limits
In the earlier days, fund houses used to announce upcoming dividends and then pay them much later. A lot of investors used to take this cue, invest, pocket dividends and then immediately redeem their investments after their NAVs fell-after dividends are distributed, NAVs fall. Such a move would lead to investors suffering a capital loss, which they used to then offset against other capital gains and lower their overall tax outgo.


Union Budget of 2004 plugged this loophole and said that anyone who buys mutual fund units within 3 months before the record date, or sells them within 9 months after the record date, cannot claim the capital loss that arises out of NAV reduction caused by dividend declaration.


In 2006, Sebi ruled that the record date should be 5 days after the day on which the announcement declaring dividend is made so that not much time is given to those who invest in mutual funds just to pocket a loss. So, if your fund declared dividend on 1 March, then the record date of dividend should be 6 March. Record date is the date on which a fund house determines who are the investors. Also, once a fund house's trustees approve the dividend declaration, it has to announce it within one calendar day.


Way of the dividend
There are components of a scheme's NAV:  the face value (Rs 10, typically), the dividend equalization reserve (DER) and unit premium reserve (UPR). Say, the NAV goes up from Rs 10 to Rs 15 but the scheme cannot pay entire Rs 5 as dividends, it has to sell shares and book profits. Say, it books Rs2 as profit. This goes to the DER and the balance (Rs 3) goes into the UPR.


Here's what is interesting. Out of the Rs2 that goes into DER, the scheme may not necessarily distribute everything. It could save some for a rainy day. Like when markets are on a continuous fall and it could not book any profits. It can then dip into the existing DER profits, which were previously booked but yet not distributed, and then distribute that. That's why old (about 20 years or even older) and large-sized equity schemes declare dividends at regular frequency, to give their investors some kind of comfort or expectation as to when a dividend might come their way.


What you should do
Once your fund house sends you a dividend receipt (provided your email ID is on its records), check your bank statement to see if you have got the credit. Also, your fund house will send you a monthly common account statement in the month after the one when your dividend was declared.






Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 10 Tax Saver Mutual Funds for 2017 - 2018

Best 10 ELSS Mutual Funds to invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield 

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan



Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300



 

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

ING Mutual Fund - Invest Online

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     Information Updated As On December 30, 2013   Name of the Mutual Fund ING Mutual Fund Date of set up of Mutual Fund February 11, 1999 Name(s) of Sponsor ING Group Name of Trustee Company ING Mutual Fund Name of Trustees Mr. Chetan Mehta - Associate Trustee Mr. Haresh M Jagtiani - Independent Trustee Mr. Sunil Gulati - Independant Trustee Mr. Surinder Mohan Pathania - Independent Trustee ...
Read more

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
Read more
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