When the portfolio is same for direct and regular plan of a scheme, shouldn’t the dividend for both the plans be declared at the same rate?
— Krishna Raj
Both direct and regular plans share the same portfolio but have different net asset values (NAVs) because of different expense ratios. In case of a regular scheme, a part of your investment is paid to the distributor as commission by the AMC, which in turn reduces a regular plan’s NAV compared to the direct plan. The difference in the returns will be in line with the difference in expense ratio.
As per the Sebi regulation, mutual funds can pay out dividends only from the realised gains. As direct plans have come into existence only from January 1, 2013, it’s possible that there is no or less distributable surplus available. Hence, the possibility of the fund not declaring dividend in the direct plan compared to the regular plan. Also, you should be aware that mutual funds are not obliged to pay dividends under any law. It is the distributable surplus with the funds which decides dividends.
This article was originally published on March 29, 2013.
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