Equity schemes make a dividend splash in Sept

With Sensex soaring to 20,000 levels, equity fund managers have started booking profits and declaring dividends. Over 13 equity funds have declared dividends in September, with many more planning payouts during the forthcoming festive season.

Equity schemes of Birla Sun Life Mutual Fund (MF), DSP Blackrock MF, UTI MF, Canara Robeco MF and Fortis MF have recently declared dividends. Around 55 schemes, or 25 per cent of all the schemes, have declared dividends in the last three months. Markets as measured by the BSE Sensex are up 11.5 per cent in September. Said Amit Nigam, senior portfolio manager, equities at Fortis MF: “Declaring dividends is a regular process and rising equity markets isn’t the only reason.” He adds that dividends are a systematic way of distributing returns earned by the fund to investors.

Equity funds have declared 7-22 per cent dividends in September. Interestingly, the dividend payout has not been higher this time. Fortis Dividend Yield declared 15 per cent, which amounted to a payout ratio of 11.5 per cent. In the past, payout have been above 20 per cent levels. Templeton India Equity Income (4.2 per cent), DSPBR Top 100 (5.7) and Birla Sun Life Buy India (6.7 per cent) were among the funds to make lower dividend payouts. Payout ratio is calculated by dividing dividend declared by the net asset value (NAV) as on on the record date.

Fund managers are finding their hands tied with the latest rules barring them from paying dividends from unit premium reserve. MFs can pay dividends only out of their realised gains now. “Recent regulatory changes on dividends are prompting fund managers to book profits regularly in rising equity markets to distribute dividends,” said Dhirendra Kumar, CEO of Value Research. Any correction, after all, could spoil their chances otherwise. Kumar expects more equity funds to declare dividends in the coming months.

The sales head from a leading fund house said: “Dividends are also a way of targetting new investors.” Even though post dividend declaration, fund NAV falls to the extent of dividend declared, MF investors often tend to get lured by it, by associating higher dividends with better performance. -FE

Source: http://www.indianexpress.com/news/equity-schemes-make-a-dividend-splash-in-sept/687567/0