Dividends represent a significant component of investment returns, enabling investors to participate in the earnings generated by their mutual funds holdings, offering them a tangible reward for their capital commitment.
Mutual funds often distribute dividends on a predetermined schedule, such as monthly, quarterly, semiannually, or annually. Recently, several mutual fund companies have announced upcoming dividend distributions for their investment products, scheduled for release on September 13, 2024.
This notification serves as a crucial reminder to investors, indicating that individuals holding positions in these funds as of the specified date will qualify to receive dividends. Dividends represent a significant component of investment returns, enabling investors to participate in the earnings generated by their mutual fund holdings, offering them a tangible reward for their capital commitment.
ICICI Pru Equity & Debt Direct-IDCWH Open-ended Rs 1.20
ICICI Pru Equity & Debt-IDCWH Open-ended Rs 1.20
ICICI Pru FMCG Direct-IDCW Open-ended Rs 8.75
ICICI Pru FMCG-IDCW Open-ended Rs 8.75
ITI Balanced Advantage Fund Direct-IDCW Open-ended Rs 14.63
ITI Balanced Advantage Fund Reg-IDCW Open-ended Rs 13.24
Source: Value Research
Mutual funds calculate dividends as a percentage of the scheme’s face value, not the NAV. Dividends can be declared from gains made from selling securities in the portfolio or from current income sources such as interest or dividends.
The frequency of dividend payments is determined by mutual funds and can be daily, monthly, or yearly. Investors have the option to receive dividend distributions when they are issued or reinvest the money by purchasing additional fund shares.
Dividends are considered taxable income and are subject to Dividend Distribution Tax (DDT). Shareholders who own shares on the record date will receive the dividends. Even if shares are bought right before the record date, investors will still receive part of their investment when distributions are paid.
The dividend yield is calculated as the annual dividend per share divided by the current market price of the fund’s units.
Returns may differ significantly based on the composition of the fund’s underlying assets and the prevailing market conditions at the time of assessment.
Mutual Fund in August: The Association of Mutual Funds in India’s latest data showed that the inflows in equity mutual funds surged by only 3 per cent to Rs 38,239 crore in August, which was Rs 37,113 crore in July. The net inflows in mutual funds dropped by 43% to Rs 1.08 crore in August against Rs 1.89 lakh crore.
Debt funds topped the list of outflows as its inflows dropped 62% to Rs 45,169 crore, down from Rs 1.19 lakh crore last month.
In August, the Systematic Investment Plan (SIP) monthly contribution hit a record high of Rs 23,547 crore, surpassing July’s figure of Rs 23,332 crore. This marks the second consecutive month that the contribution exceeded the Rs 23,000 threshold.
Equity mutual funds
Equity mutual fund schemes saw the second-highest inflows this year in August. The total inflow amounted to Rs 38,239 crore, marking a 3% increase compared to the previous month despite the heightened market volatility during this period. This indicates a positive sentiment among investors towards equity investments during the specified period.
Large-cap funds saw a significant rise in inflows to Rs 2,636 crore, up from Rs 670 crore in July. That is 293% growth.
Mid-cap funds saw inflows of Rs 3,054 crore, compared to July’s Rs 1,644 crore. The small-cap funds saw inflows of Rs 3,209 crore, a slight dip from Rs 4,171 crore in July. Multi-cap funds drew Rs 2,475 crore in August, up from Rs 1,703 crore in July.
Flexi-cap funds were the top performers in the equity categories last month. They attracted investor interest and garnered Rs 3,513 crore in inflows, showing a significant increase from Rs 2,081 crore in July.
The value/contra funds, known for investing in undervalued stocks or those that are out of favor with the market, also experienced inflows of Rs 1,728 crore. In comparison, dividend yield funds, which focus on generating regular income through dividends, saw inflows of Rs 499 crore.
On the other hand, sectoral/thematic funds, which concentrate on specific sectors or themes, continued to be popular among investors, attracting a substantial amount of Rs 18,117 crore in inflows. These funds offer diversification opportunities and cater to investors looking to capitalize on specific trends or industries.
“We are interestingly seeing investors balancing their asset allocation in favour of large cap, Multicap and flexi cap funds. Give the run up in mid and small cap space, managing risk is paramount today and from that perspective this is a good development. Thematic funds through NFO’s are also garnering high inflows, new themes trying to benefit from government reforms also offer opportunity to participate through tactical allocation. SIP’s continue to grow about 1% every month, this is very healthy for long term growth of the industry and investors to increase their equity allocation in a disciplined way,” said Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC.
“Large, mid, and small-cap funds experienced increased net flows compared to the previous month. For the first time, the number of MF folios reached 20.45 crore, showcasing growing investor confidence in the mutual fund industry. Overall, MF investors, who are becoming increasingly mature, continue to express confidence in the Indian economy and capital markets. The AMFI data indicates that domestic flows continue to be strong and despite the global uncertainty and volatility, this will continue to drive the markets. Despite stretched valuations, the demand continues to remain stronger, especially in the thematic, mid and small-caps funds. A partial shift of inflows from multi-cap to large was witnessed and this can be temporary due to valuation differences. The share of net inflows to small-cap funds has doubled and flexi-cap funds saw an increase of 12%, indicating stronger demand for equities as an asset class despite high valuations,” said Deepak Ramaraju, Senior Fund Manager, Shriram Asset Management Company Ltd.
New fund offerings
The strong inflows were also driven by robust investments in new fund offerings (NFOs) as well as an increase in systematic monthly investments. Around 18 open-ended NFOs were floated in August, which together mobilised Rs 13,815 crore, with the highest contribution by sectoral/thematic funds of Rs 10,202 crore.
Debt funds
In August, the debt mutual funds witnessed an inflow of Rs 45,169 crore, showing a 62% decline in net inflow for the category. The overnight funds experienced the maximum inflow, while liquid funds recorded an inflow of Rs 15,105 crore compared to the outflow of Rs 4,451 crore in July.
Of the total 16 categories of debt mutual funds, 12 received inflows in August. Liquid funds secured the second-highest inflows at Rs 13,594 crore. Conversely, banking and PSU funds faced the highest outflow of Rs 1,549 crore, contrasting with an outflow of Rs 307 crore in July.
Hybrid fund categories saw a 43% decrease in total inflows, reaching Rs 10,005 crore in August compared to Rs 17,436 crore in July. All hybrid categories, except conservative hybrid funds, experienced inflows in August, with dynamic asset allocation/balanced advantage funds leading with inflows of Rs 3,215 crore.
“India’s mutual fund industry crossed the all time high AUM of Rs 66.70 lakh crore. Amongst the equity and hybrid funds, the categories which saw the most funds mobilised on a net basis are sectoral/thematic funds followed by flexi Cap and large & mid cap funds. It is interesting to know that the Indian mutual fund industry took 50 years to build Rs 10 trillion of AUM (1963- 2013). It took another 6 years to reach the Rs 23 trillion AUM mark in 2019. In August 2024, we tripled the Assets under Management and are now at Rs 66.70 trillion AUM. Mutual fund investment is one of the suitable investment options available to investors, which is cost effective, transparent & provides an opportunity for retail investors to participate in growing India,” said Hitesh Thakkar, Acting CEO, ITI Mutual Fund.