Is it obligatory to provide ECS facility for payment of dividend as per SEBI guidelines? If one is out of station at the time of delivery of dividend warrant he unnecessarily loses opportunity to deploy those funds. Has any study been made on dividend policies followed by MFs ? Which funds are liberal in declaring dividends?
-Vinayat Hari Gadre
Market regulator SEBI mentions ECS as one of the options for dividend distribution. The regulator does not mention the ECS facility to be obligatory in any way. If you are a frequent traveler and tend to miss such warrants, then it would be advisable for you to institute the ECS facility. As far as dividends are concerned, mutual funds are not under any obligation to declare such dividends. Debt funds with a dividend payout policy usually adhere to annual payments of dividends but these are not mandatory. Equity funds may declare dividends when the fund manager is not optimistic about the future market condition and spots an opportunity for profit booking. Another case arises when the fund manager does not find any good bargains in the market and would rather disburse the cash on hand rather than let it be a drag on the returns. As such funds do not have a distinct dividend policy.
Also it is not advisable to rely on dividends from equity funds as a source of income to meet expenses. During the year 2006 some of the best performing funds declared dividends in excess of 100 per cent. Take Magnum Equity for instance, it declared a whopping 149.95 per cent and 22 per cent dividend in 2000, but skipped the years 2001, 2002, 2004 and 2005. On the other hand Franklin India Bluechip has not missed dividends in any year since 1999, even after paying dividends thrice in 2000 of 220 per cent, 65 per cent and 25 per cent.
This article was originally published on March 15, 2007.
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