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Dividend Woes

I had invested in the dividend option of Magnum Balanced. The fund claims very high returns in the past five years but the return on my investment is jus 0.2 per cent per annum. Please advice.
-Capt Vinod Nair

I invested Rs 50,000 in the dividend reinvestment option of Magnum Balanced Fund on March 2, 2000 and subsequently received bonus units on March 18. The returns by the fund have been Rs 787 in six years which is only 0.2 per cent per annum. However the fund claims absolute returns of 321 per cent over a five-year period ending August 30, 2006. Similarly, Rs 50,000 invested in ICICI Prudential Growth Plan is worth Rs 62,408, which is just over 4 per cent per annum. Similarly here the fund claims an absolute returns of 371.5 per cent over a five-year period. I seek your advice on the matter.
-Capt Vinod Nair

Magnum Balanced under the dividend option has declared one bonus and five dividends since March 2, 2000 while ICICI Prudential Growth has declared nine dividends since then. As of March 2, 2007 the absolute 5- year return on Magnum Balanced stood at 329 per cent, while the absolute return between March 2, 2000 and March 2, 2007 stands at 54.41 per cent.

The reason for such a variation in the five year return figures and the return on your portfolio is that your lump sum investment of Rs 1,00,000 was made at a time when equity markets were at an all time high and within a span of 45-odd days the market turned severely bearish owing to the fall of technology stocks. Fortunately, your investments have managed to make good the losses since that crash, which has been possible due to the time spent by you in the market.

Your apprehensions of the NAV hovering around the Rs 22-26 range are unfounded, because in case of the dividend re-investment option, the NAV of the fund falls by the amount of the units allotted to you when a dividend is declared. Therefore, your gains are reflected in terms of higher number of units held by you rather than a change in NAV value. Based on our data, the number of units held by you in Magnum Balanced as of now should be 3,138.569. As of March 2, 2007 the NAV (dividend option) of Magnum Balanced is Rs 24.6 and the market value of your holding as on this day is Rs 77,208.8. As regards ICICI Prudential Growth you can find the dividend update in the table. Your absolute return under this fund is 124.61 per cent since your purchase in March 2000.

Date  Dividend (%)
Magnum Balanced  
21-Mar-00 30
28-Oct-03 14
03-Feb-04 20
20-Jan-05 20
16-Nov-05 39
ICICI Prudential Growth  
21-Mar-00 100
05-Mar-01 12
18-Mar-02 8
25-Jul-03 8
07-Nov-03 25
26-Mar-04 20
18-Mar-05 10
24-Mar-06 20
15-Dec-06 25

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