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When the portfolio is same for direct and regular plan of a scheme, shouldn't the dividend for both the plans be declared at same rate.
- Krishna Raj
When you invest in mutual fund using a direct plan you deal with the AMC directly, while in a regular plan you invest through a distributor or advisor.
Both plans share the same portfolio but have different Net Asset Values (NAVs) because of different expense ratios. A part of your investment is paid to the distributors as commission by the AMC, which in turn reduces a regular plan's NAV. Therefore, the returns from the two plans will also be different. The difference in the returns will be in lines with the difference in expense ratio.
Also, mutual funds are not obliged to pay dividends under any law. It is the distributable surplus with the funds which decides dividends.
As per SEBI regulation, now mutual funds can only give dividend from the realised gains. Direct plans have come into existence from January 1,2013, hence it is possible that there is no or less distributable surplus available with the funds. Therefore, there is a possibility that the fund doesn't declare or declares fewer dividends under the direct plan.
This article was originally published on March 15, 2013.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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