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Will the NAVs of dividend plans of mutual funds ever recover to their original value?

Dhirendra Kumar highlights why dividends declared by mutual funds don't really make any sense

I invested a certain portion of my money in dividend plans around three years ago and got reasonable dividends periodically. Given the prevailing scenario and that no further dividends are paid, can the fund's valuation ever match to the original investment amount?
- Kedar Karmakar

As I keep saying, dividends from mutual funds don't matter. If your mutual fund gives you a dividend and the value of your investment has gone down, it is actually no return. Total returns of mutual funds matter the most and that is what you should actually check. You can take dividends from your open-ended mutual funds at any time in the form of redemptions of the gains on investments. For instance, if you have invested Rs 1 lakh and the value of your investments appreciates to Rs 1.05 lakh, you can always withdraw the gains of your investments, in this case Rs 5000, as and when you want. This will also ensure that the value of your capital does not go down. In the case of dividend plans, you may invest Rs 1 lakh today and tomorrow the fund may declare a dividend of Rs 5000, as the NAV of the fund may have grown from the last time it declared dividends. While on the aggregate fund level, dividends are distributed from gains, but for an individual investor like you who might have entered the fund yesterday, this will not be from the gains and the value of your investment will actually reduce to Rs 95,000. While you can feel happy that you have received a dividend of Rs 5000, it is actually meaningless and that is what you are looking at in this case.

Consider the total return of your fund and if the fund was giving dividend and now it has stopped giving dividends, it means that the fund is not doing well. SEBI laws allow only funds that are generating a distributable surplus to give dividend out of the surplus. Thus, if your fund is not doing well, don't stick to it. We generally have a mental bias that if our investment is not doing well and we have for instance invested Rs 1 lakh in it, we will wait till our investments grow back to Rs 1 lakh before withdrawing the money. So, you should not only analyse the reasons why your investment is not doing good but also check with your investment advisor if needed and act. Even if you have to incur some losses, don't shy away. Take into account the dividends you have already received and if you have to take a marginal loss, do so and move to another better investment, which will actually be more productive.