Ask Value Research

Why do direct and regular plans have different dividends?

Regular plans have been around for a long time and they also had large corpuses

What is the reason for difference in dividend between direct plan and regular plan?
-Spandan Soni

Difference in dividend distribution between direct and regular plans is mainly because the schemes that declared huge dividends under their regular plans have been around for a long time and they also had large corpuses. Hence, they could afford to be generous in their payouts. Two, direct plans in comparison have been around only since 2013 and they may not have huge realised gains to distribute among investors.

Mutual funds can pay dividends only out of realised gains. Funds used to pay dividends from their premium reserves earlier, but Securities and Exchange Board of India (SEBI) in March 2010 has asked them to pay dividends only from the realised gains made on their portfolio.

This article was originally published on May 12, 2017.

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