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HDFC Mid-cap Opportunities fund declared a dividend of Rs 1.75 for the regular plan, in February, but it did not declare any dividend for the direct plan. Similarly, ICICI Prudential Discovery declared of Rs 2.14 for the regular plan, but did not declare any dividend in the direct plan.
If investors of some mutual fund schemes find that they have received no dividend or lesser dividend as compared to investors of regular plans, it is due to a Securities and Exchange Board of India (Sebi) rule which says that dividends can be paid out of realised gains only, says Dhirendra Kumar, of Valueresearch.
However, according to data from Valueresearch, this is not a trend across mutual funds and schemes. It is specific to some schemes. For instance, if the Net Asset Value increases from Rs 10 to Rs 13, the gain is Rs 3. Earlier funds used to pay dividend out of these gains. But now Sebi has made it mandatory that 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 Re 1, then it can pay dividends only out of that Re 1.
The realised gains is higher in case of regular plans than direct plans, simply because the former have been around for longer. But this does not mean a loss for investors in direct plans because the NAVs of these plans are higher. For instance, in case of HDFC Prudence the NAV is Rs 27.38 for the direct plan and Rs 25.25 for the regular plan. Similarly, in case of ICICI Prudential the NAV is Rs 21.49 for the direct plan and Rs 19.19 for the regular plan.
"Returns come from both dividend and growth. If dividend is lower for direct plans, the NAV is higher because of lower expenses, as compared to regular plans. Even if the dividend is lower in case of direct plans, the appreciation in NAV is higher in their case,'' says Hemant Rustagi, CEO, WiseInvest Advisors.
Going ahead, the difference in the dividend between the regular and direct plans will come down because the accumulated profits of the direct plans will also go up. In the long run, the difference in the dividends does not matter since dividends are not really an indicator of the fund's performance. Due to lower expenses, the direct plans will always score over regular plans, Rustagi points out.
HDFC Prudence was launched in 1994, while ICICI Prudential Tax Plan was launched in 1994. Both the direct plans of the funds were launched in January 2013, when Sebi allowed fund houses to launch direct plans with lower expense ratios and offer higher NAV for them.
If the take the same example, the expenses for HFDC Prudence the expense ratio was 1.69% as on September 2014, while for the regular plan it was 2.25%. while the direct plan was launched in Similarly for ICICI Prudential Tax Plan the expense ratio was 2.4% for the regular plan and nil for the direct plan.
