Market sentiments and stability in government go hand in hand. As such, if the government is unstable, chances of negative sentiments driving markets down assumes significance and vice versa.
And a party in power at the Centre with a strong majority, as has happened in India after the recent Parliamentary elections concluded, may be the exact reason behind the markets’ rallying to historic highs with expectations that economic reforms will be introduced and implemented much faster.
In the mutual funds space, the effect has been very electrifying and energizing for investors. Thanks to the rally, the equity markets were able to generate gains, which in turn have led to a spurt in dividend declaration by fund houses.
There have been 48 dividend declarations in equity schemes this year, including 9 in tax planning schemes. But, thanks to the jump in the market, 24, of these declarations took place in the span of past one month itself.
Out of these 24 declarations, 20 funds had seen their NAVs drop below Rs 10 in the past one year, some as recently as early March this year.
In fact, a lot of such funds have witnessed the date of their minimum NAV coinciding with the date on which the Sensex had hit a low of 8,160 points on March 9, 2009. Since then the markets have been on a rise because of a cumulative effect of better corporate results, elections and industrial growth numbers leading to improved sentiment on the street.
According to the guidelines, funds can declare dividends only from the distributable surplus. When dividends are declared, NAV should not fall below the face value.
Statistics show that during the period between March 9 and June 9 this year, diversified equity funds have gained 75.71 per cent while Sensex and Nifty gained 85.37 per cent and 76.86 per cent respectively.