If you think all investors get the same dividend per unit of the same fund, you’re wrong.
If you invested in the direct plan of a mutual fund scheme, chances are that you will be paid a different, usually smaller, dividend than a regular plan investor. .
For instance, in August, Birla Sun Life Advantage Fund declared dividend of ₹20 a unit on its regular plan.
But in the direct plan, the dividend was half that – ₹10 a unit. Earlier, in March, ICICI Prudential Value Discovery Fund declared dividend of ₹3.3 a unit on its regular plan, while investors in the scheme’s direct plan got just ₹1.
In March again, regular plan investors in DSP BlackRock Small and Mid Cap Fund got ₹2.3 a unit, while direct plan investors in the same scheme got nothing.
Other fund houses too follow this practice of different dividend payouts.
Why the difference?The difference in dividend payout is not a ploy by fund houses to make direct plans less attractive.
In fact, direct plans are supposed to give investors better returns than regular plans as the fund saves on the commission payable to the distributor. Then, why is the dividend lower?
It turns out that the fund houses are just toeing the line of market regulator SEBI on dividend distribution.
A Balasubramanian, CEO, Birla Sun Life Asset Management Company, says: “It is an accounting challenge which is causing a change in the distributable surplus in the plans.”
He adds, “It is an industry-wide issue.” Fund houses are supposed to calculate the dividends for each of their plans based on the distributable surplus.
A plan’s distributable surplus is computed as its Net Asset Value (NAV) minus its face value, unrealised gains and accumulated Unit Premium Reserve (UPR).
UPR is determined at the plan level after apportioning realised and unrealised gains in the ratio of the respective assets under management.
As a DSP BlackRock MF spokesperson explains: “Distributable surplus is computed after taking into account the unrealised gain and the balance in the UPR.
So, the ability to declare dividends in a plan depends on the UPR balance. Some plans did not have a distributable surplus due to a higher proportion of UPR and, therefore, the trustees have not been able to declare dividends in those plans.”
The differences between plans arose because direct plans were introduced only recently in early 2013.
According to DSP BlackRock, “Direct plans witnessed huge one-time inflows and switches from regular plans when they were launched. Based on the unrealised gain at the time of initial inflows, there are large UPRs created in direct plans resulting in situations where a regular plan has more distributable surplus as compared to the direct plan.”
To sum up, the dividend declared in a plan depends on its performance, position of gains and the UPR balance.
Even if the returns in the direct and regular plans under a scheme are similar, the dividend could vary depending on the UPR balance in the plans.
Talking to SEBIBalasubramanian of Birla Sun Life says that mutual fund players under the AMFI are trying to sort the matter out with SEBI, so that investors under both direct and regular plans get the same dividend distribution.