Drop us a line and mutual fund experts, Value Research, will do the needful.
However, they have not done so for quite a while though their Net Asset Value is way above Rs 10.
What could be the reason?
- Bhaskar G
First of all, a fund must be in a position to pay a dividend. Funds pay out dividends from the gains they have made. A simple way to find out is to check its NAV, which is the price of a unit of a fund.
An NAV above Rs 10 shows that a fund is in a position to pay dividends. Which seems to be the case in your funds.
However, dividend distribution by a fund is done at its discretion.
There is no guarantee or assurance that a fund will pay dividend even if it has the money to do so.
The important point is that you should not worry about dividends in equity funds. The purpose of equity fund investing is growth of capital. So you should be more concerned about the growth in NAV. To understand equity investing, read 5 things you must know about shares.
Dividends are not 'extra' gains that you get. When funds pay out dividends, the NAV drops by a corresponding amount.
For example, say there is a fund with an NAV of Rs 18. When it pays a dividend of 20%, its NAV will drop to Rs 16, since it has paid out Rs 2 (20% of the face value of each unit of Rs 10 is Rs 2).
If it does not pay the dividend, the NAV will stay at Rs 18. So you make a profit when you sell the units.
Can I buy an SIP in a mutual fund without paying any load? Also, can I do it online via ICICI Direct?
- Param Ghanshyam
First of all, we would like to congratulate you for opting for a Systematic Investment Plan. It is the best way to invest in a mutual fund as it does away with the need or effort to time the market.
By regularly investing, not only does one get disciplined but one gets to invest in the highs as well as the lows of the stock market. Over time, this averages out the volatility of the market.
To understand how SIPs work, read How to invest in a mutual fund.
A load is just a fee charged by the mutual fund. If it is charged when you buy the units, it is called an entry load. If it is levied when you sell the units, it is referred to as an exit load.
In order to encourage investors, a number of fund companies have removed the entry load on SIPs. Barring a few like the Reliance Mutual funds, most funds have no entry load for SIPs. For fund houses, it is advantageous as their assets grow every month or quarter without additional sales effort.
You will have to shell out an exit load, if you wish to redeem (sell) your investments before a stipulated period (generally between six months and two years).
Once you have made up your mind on the schemes you would like to invest in, you can call the fund houses and they will take care of all the procedures. You can also transact online on some of their websites.
But if you have funds of more than one asset management company (mutual fund house), then it might be a good idea to go through a distributor as you get a one-point contact. Since distributors follow the same rules as the fund houses, you are not charged extra. You could go to distributors like Bajaj Capital, Karvy Consultants, Way2Wealth etc.
ICICI Direct gives you the online flexibility to choose any amount, modify or cancel the SIP at any point. However, the basic advantage of an SIP is lost because it charges you an entry load; it treats your online SIP request as a fresh order. Hence, the applicable entry load is levied. If you are sure you will be investing a certain amount every month or quarter, it is better to go to a distributor who does not charge you any load.
Got a question for Value Research? Please write to us!
Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).
Illustration: Dominic Xavier