Mutual funds have put up a strong show in the backdrop of the bull run witnessed in the equity markets in the last five years.
Funds such as Reliance MF, UTI, HDFC, ICICI Prudential, Birla Sun Life and SBI MF are now boasting of a corpus that easily exceeds the size of the whole industry till a few years ago.
With more transparency in their functioning and stricter regulatory control and the tax concessions that have been extended by the Government to investments in/dividend from mutual fund schemes, the total assets under management of the mutual funds as on June 30, 2008, had grown to Rs 5.64-lakh crore (Source: AMFI).
Investment in mutual funds has become a viable option for those who are willing to bear a little risk to make a far higher inflation/tax-adjusted return compared to fixed deposits.
Funds such as Reliance MF, UTI, HDFC, ICICI Prudential, Birla Sun Life and SBI MF are now boasting of a corpus that easily exceeds the size of the whole industry till a few years ago.
With more transparency in their functioning and stricter regulatory control and the tax concessions that have been extended by the Government to investments in/dividend from mutual fund schemes, the total assets under management of the mutual funds as on June 30, 2008, had grown to Rs 5.64-lakh crore (Source: AMFI).
Investment in mutual funds has become a viable option for those who are willing to bear a little risk to make a far higher inflation/tax-adjusted return compared to fixed deposits.
Long-term appreciation
While the growth option of mutual funds would suit those who want long-term appreciation of investment, the dividend option is a boon to those who look for periodic payments.
The diversified equity schemes of the established mutual funds have become a dependable source of income.
With some of the funds splitting the dividend payments to twice in a year — to the second or third quarter and again to the last quarter of the fiscal — the investors were able to anticipate the cash flow and plan accordingly.
The diversified equity schemes of the established mutual funds have become a dependable source of income.
With some of the funds splitting the dividend payments to twice in a year — to the second or third quarter and again to the last quarter of the fiscal — the investors were able to anticipate the cash flow and plan accordingly.
Dividend payout
An analysis of the fact sheets of prominent mutual funds shows that the NAVs of many of the funds had recovered the fall in value, to the extent of dividend payment made, before the next dividend date or had remained high enough for the funds to make a decent dividend payout again. True, this was possible because of the sustained bull-run the stock markets were witnessing till early 2008.
But what was significant to note was that for the investors who had taken the SIP route for investment, the dividend earnings would have been consistently on the rise because regular investment would have brought in more units, helped also by the fall in NAV. This benefit of course would not have been achieved if they had redeemed their units.
Take the case of Reliance Growth Fund, which has a mid-cap bias. If one had made an one-time investment of Rs 28,000 ( excluding any load) on July 18, 2003, (cum div NAV Rs 27.96) to be allotted 1,000 units, by end-March 2008, the investor would have earned a cumulative dividend payout of Rs 60,500 on the investment as the fund had made a total dividend payout of Rs 60.50. Even after such a huge payout, value of the original investment itself had nearly doubled as the NAV of the dividend option zoomed to Rs 54.53 as on March 19, 2008, the record date for the last dividend payout.
Reliance Vision Fund, which is a diversified large cap fund, paid a dividend of Rs 19.50/unit in 2003-04 and in the four subsequent financial years, the fund paid each year a dividend of Rs 10.50, Rs 10.50, Rs 10 and Rs 10 per unit, taking the total dividend payout to Rs 60.50/unit in five years, same as its famed sibling.
Franklin Templeton also has upped the dividend payout in the past two years, responding probably to the investor aspirations.
The fund’s flagship scheme, Franklin India Bluechip Fund had made a total dividend payout of Rs 22.50 during 2003-04 to 2007-08. Franklin India Prima Plus is another fund that has paid a good cumulative dividend of Rs 29 in the past five years.
Franklin India Taxshield also has been a good dividend payer in the last two years with dividend payout of Rs 8 per unit each year.
HDFC Mutual Fund’s Equity Fund had paid a total dividend of Rs 24.50 in the past five years. HDFC Prudence Fund, a balanced fund, has been a star performer and the total dividend payout in five years has been Rs 26.50 per unit. Its TaxSaver scheme has paid a cumulative dividend of Rs 28 per unit in the past four years, helped by a higher NAV.
Sundaram BNP Paribas’ Select Focus, which is a ‘pure large cap’ fund, has made a total dividend payment of Rs 27.50 in the past five years.
Select Midcap is another good dividend payer with a payout of Rs 27 per unit during 2003-04 to 2006-07. Tax Saver Fund which is a five star rated fund by Value Research has made a dividend payout of Rs 26.50 in five years.
Birla Sun Life Equity Fund has given a dividend of Rs 30/unit in five years. But it was its Tax Relief ‘96 scheme that has been a star dividend payer. From its inception in 1996 till March this year, the fund had made a total dividend payout of Rs 211/unit. Of this, Rs 171/unit was paid during 2006-07 and 2007-08. Probably the fund resorted to such high payouts to bring down the NAV so as to attract fresh subscription. This scheme had assets worth Rs 677.72 crore as at the end of May 2008.
Other funds such as ICICI Prudential MF and DSP Merrill Lynch also have funds that have given good dividends in the past few years. DSPML Equity Fund, Top 100 Equity Fund and T.I.G.E.R Fund have provided good dividend payouts. ICICI Prudential’s Infrastructure Fund has been upping the dividend payment and its Tax Plan also has been a good dividend bet.
If one is able to build a corpus of 3,000-5,000 units each, over a period of time, by diligent investing in two or three funds, even a small dividend payout by each of them could turn out to be cumulatively a substantial income. That they are tax free is an added bonus. Part of this income could be used to make fresh investment through the SIP route in the same funds. One could also use the taxable income for investing in tax saving instruments like ELSS or PPF even while using the dividend payment for meeting living expenses.
However, in the near term, it remains to be seen whether the funds would be generous in their dividend payout because of the sustained fall in the value of equities. With the NAV of individual schemes down substantially and the future market trend looking uncertain, the funds may be cautious in their dividend payouts. But, even if the percentage of dividend is pruned, investors, who continue to invest in well-run mutual funds, would still be able to make a decent earning because of the cumulative increase in the number of units held by them. What better time could there be for increasing one’s unit corpus than when the markets are down? With tax concessions thrown in, can the investors ask for more?
An analysis of the fact sheets of prominent mutual funds shows that the NAVs of many of the funds had recovered the fall in value, to the extent of dividend payment made, before the next dividend date or had remained high enough for the funds to make a decent dividend payout again. True, this was possible because of the sustained bull-run the stock markets were witnessing till early 2008.
But what was significant to note was that for the investors who had taken the SIP route for investment, the dividend earnings would have been consistently on the rise because regular investment would have brought in more units, helped also by the fall in NAV. This benefit of course would not have been achieved if they had redeemed their units.
Take the case of Reliance Growth Fund, which has a mid-cap bias. If one had made an one-time investment of Rs 28,000 ( excluding any load) on July 18, 2003, (cum div NAV Rs 27.96) to be allotted 1,000 units, by end-March 2008, the investor would have earned a cumulative dividend payout of Rs 60,500 on the investment as the fund had made a total dividend payout of Rs 60.50. Even after such a huge payout, value of the original investment itself had nearly doubled as the NAV of the dividend option zoomed to Rs 54.53 as on March 19, 2008, the record date for the last dividend payout.
Reliance Vision Fund, which is a diversified large cap fund, paid a dividend of Rs 19.50/unit in 2003-04 and in the four subsequent financial years, the fund paid each year a dividend of Rs 10.50, Rs 10.50, Rs 10 and Rs 10 per unit, taking the total dividend payout to Rs 60.50/unit in five years, same as its famed sibling.
Franklin Templeton also has upped the dividend payout in the past two years, responding probably to the investor aspirations.
The fund’s flagship scheme, Franklin India Bluechip Fund had made a total dividend payout of Rs 22.50 during 2003-04 to 2007-08. Franklin India Prima Plus is another fund that has paid a good cumulative dividend of Rs 29 in the past five years.
Franklin India Taxshield also has been a good dividend payer in the last two years with dividend payout of Rs 8 per unit each year.
HDFC Mutual Fund’s Equity Fund had paid a total dividend of Rs 24.50 in the past five years. HDFC Prudence Fund, a balanced fund, has been a star performer and the total dividend payout in five years has been Rs 26.50 per unit. Its TaxSaver scheme has paid a cumulative dividend of Rs 28 per unit in the past four years, helped by a higher NAV.
Sundaram BNP Paribas’ Select Focus, which is a ‘pure large cap’ fund, has made a total dividend payment of Rs 27.50 in the past five years.
Select Midcap is another good dividend payer with a payout of Rs 27 per unit during 2003-04 to 2006-07. Tax Saver Fund which is a five star rated fund by Value Research has made a dividend payout of Rs 26.50 in five years.
Birla Sun Life Equity Fund has given a dividend of Rs 30/unit in five years. But it was its Tax Relief ‘96 scheme that has been a star dividend payer. From its inception in 1996 till March this year, the fund had made a total dividend payout of Rs 211/unit. Of this, Rs 171/unit was paid during 2006-07 and 2007-08. Probably the fund resorted to such high payouts to bring down the NAV so as to attract fresh subscription. This scheme had assets worth Rs 677.72 crore as at the end of May 2008.
Other funds such as ICICI Prudential MF and DSP Merrill Lynch also have funds that have given good dividends in the past few years. DSPML Equity Fund, Top 100 Equity Fund and T.I.G.E.R Fund have provided good dividend payouts. ICICI Prudential’s Infrastructure Fund has been upping the dividend payment and its Tax Plan also has been a good dividend bet.
If one is able to build a corpus of 3,000-5,000 units each, over a period of time, by diligent investing in two or three funds, even a small dividend payout by each of them could turn out to be cumulatively a substantial income. That they are tax free is an added bonus. Part of this income could be used to make fresh investment through the SIP route in the same funds. One could also use the taxable income for investing in tax saving instruments like ELSS or PPF even while using the dividend payment for meeting living expenses.
However, in the near term, it remains to be seen whether the funds would be generous in their dividend payout because of the sustained fall in the value of equities. With the NAV of individual schemes down substantially and the future market trend looking uncertain, the funds may be cautious in their dividend payouts. But, even if the percentage of dividend is pruned, investors, who continue to invest in well-run mutual funds, would still be able to make a decent earning because of the cumulative increase in the number of units held by them. What better time could there be for increasing one’s unit corpus than when the markets are down? With tax concessions thrown in, can the investors ask for more?
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