Mutual funds - difference in dividend declaration- Regular and Direct plans

Of late, may mutual fund have declared dividends. If you have been wondering that your scheme ( direct) was treated differently from the other for dividend declaration, here's the reason.

No dividends in yourdirect plan?
Don't worry on this count, as thereare valid reasons regarding realisedgains; look at other factors, too

Investors of the HDFC Prudence Fund direct plan received a

dividend of ~1.25 a unit in March. But investors in the regular

plan of the same fund received a dividend of ~3 a unit. Similarly,

in the ICICI Prudential Tax Plan, the direct plan declared a dividend

of 1.5 per cent a unit, while the regular plan declared a dividend

of two per cent a unit.

HDFC Mid-cap Opportunities Fund declared a dividend of

~1.75 for the regular plan in February but did not declare any

dividend for the direct plan. Similarly, in January, ICICI

Prudential Discovery declared a dividend of ~2.14 for the regular

plan but none in the direct plan.

Data from Value Research says this is not a trend across

mutual funds and schemes. It is specific to some schemes. The

reason why some direct MF plans did not declare dividends or

declared less was because of a Securities and Exchange Board

of India rule that dividends can only be paid from realised

gains, says Dhirendra Kumar of Value Research.

For instance, if the net asset value increases from ~10 to ~13,

the gain is ~3. Earlier, funds used to pay a dividend out of these

gains. Sebi has now said the dividend can be paid only out of

the profits the fund makes, by selling shares and booking profits.

So, if the fund makes a profit of ~1, it can pay dividends only

out of that ~1.

Credits :- Full article on link -