I always read your article and also use portfolio and other tools on this web site to enhance my knowledge. Your my portfolio option is superb than any other online web portal. I have invested in seven different equity-oriented mutual funds schemes (growth & direct) through MF Utilities India. I have also made my portfolio on valueresearchonline. I have noticed that compared to regular plans, my direct growth schemes have no dividend history. Here is my question: if direct growth plan do not yield dividend, then how can they be beneficial? Direct plans have lower expense ratio than regular plan, but they have no dividend history.
- Vishal Patel
Direct plans don't have a long dividend history because they have been around only for the last three years. Direct plans also don't declare dividends regularly because they don't have realised gains or distributable surpluses. As per Securities and Exchange Board of India (SEBI) rule, mutual funds can pay dividends only from the realised gains made on their portfolio. This is the reason why regular plans with large corpus and a long life, can declare dividends regularly than direct plans that came into existence in 2013.
Since you have opted for the growth option, you shouldn't worry about the lack of dividends. Dividends in mutual fund is nothing but profits given back to investors. It is like taking profits by selling a part of your investment. Since you have opted for the growth option, profits from your investments would be reinvested and it would help you create more wealth over a long period. As you have pointed out, the lower expense ratio would also help you save more and make more money out of it.
This article was originally published on February 24, 2016.
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