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Dividends? Not Important

Should you worry if your equity fund has not given any dividends lately, even though its NAV is much above Rs 10. Read on to understand the dynamics of dividends in equity funds

I have invested in Franklin India Bluechip, Franklin India Prima and Franklin India Prima Plus. None of these funds have paid any dividend for the year ending March 31, 2003, though their NAV was above the IPO price of Rs 10. Aren't mutual funds required to distribute their earnings to investors?
S. R. Wadekar

Funds pay dividends from the distributable surplus available to them. This surplus comes from the realised gains and these have to be greater than any accumulated losses in the fund. A simple way of finding out if a fund is in a position to pay dividends is to check its NAV. An NAV above Rs 10 per unit shows that a fund is in a position to pay dividends. However, the dividend distribution by a fund is at its discretion. There is no guarantee or assurance that a fund will pay dividend even if it has a distributable surplus. This seems to be the case with the funds that you have mentioned.

But the more important point is that you should not worry too much about dividends in equity funds. The purpose of equity fund investing is long-term growth of capital and this happens irrespective of the fact that you are in the dividend option or the growth option. All the funds you have mentioned have a strong long-term record of growth and you should not feel apprehensive on this count.

In financial year 2003 dividends from equity funds were subject to a tax of 10 per cent in the hands of investors. This financial year they are totally tax-free. So maybe you were better off not receiving a dividend at that point. Also, Franklin India Prima and Franklin India Bluechip have paid out dividends of 25 per cent and 20 per cent on June 27, 2003 and July 31, 2003 respectively.

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