MFs not under obligation to declare dividends

FUND QUERIES

Market regulator SEBI mentions ECS as one of the options for dividend distribution. The regulator does not mention the ECS facility to be obligatory in any way. If you are a frequent traveller and tend to miss such warrants, then it would be advisable for you to institute the ECS facility.  As far as dividends are concerned, mutual funds are not under any obligation to declare such dividends. Debt funds with a dividend payout policy usually adhere to annual payments of dividends but these are not mandatory.  Equity funds may declare dividends when the fund manager is not optimistic about the future market condition and spots an opportunity for profit booking.  Another case arises when the fund manager does not find any good bargains in the market and would disburse the cash on hand rather than letting it be a drag on the returns. As such funds do not have a distinct dividend policy.  Also it is not advisable to rely on dividends from equity funds as a source of income to meet expenses. In 2006, some of the best performing funds declared dividends in excess of 100 per cent.  Take Magnum Equity for instance, it declared a whopping 149.95 per cent and 22 per cent dividend in 2000, but skipped the years 2001, 2002, 2004 and 2005.  On the other hand Franklin India Bluechip has not missed dividend payments since 1999. It paid dividends of 220 per cent, 65 per cent and 25 per cent in the year 2000 only.  For evaluating an MF scheme, net asset value (NAV), which is based on the market price of the stocks held by the fund, is taken into account rather than the book value of the portfolio. Is there any significance of book value in evaluating performance of the fund manager? Can this be used as an indicator for buying or selling a fund.

--Rajinder Singh Nibber

Book value is used in the form of price to book value ratio (PB) which compares a stock