I have noticed that many a times the stocks present in my fund's portfolio declare dividend, but I don't receive any. What happens to these dividends?
-Rajinder Mittal
If a stock, which is present in your fund's portfolio, declares a dividend, then it goes into your fund, and is reflected in the NAV. But since the quantum of dividend is quite low vis-à-vis the size of the fund, the appreciation in the NAV is very small and hence, not explicitly noticeable.
When you invest directly in stocks, you receive the dividend as and when the company declares it. In case of mutual funds, since the individual scheme is the investor on your behalf, the dividend goes into the scheme. Now, whether the mutual fund scheme declares and distributes a dividend is a decision entirely at the discretion of fund management and is not related to the dividend declaration by stocks in its portfolio. A fund may not declare any dividends for long periods of time if it has enough opportunities to invest the money in the markets.
Therefore, while you can be assured about the fact that the benefit of dividend declaration by a stock does accrue to the investors of the scheme, but unlike a stocks investor, you cannot expect to receive it as and when it is declared.
This article was originally published on November 07, 2006.
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