The Hindu Business Line : Is it now a season for dividends?

SOME are quite brash about it. Others approach it coyly. Still others vigorously urge their existing investors to grab the opportunity. If you have not guessed it already, we are talking about dividends declared by fund houses and the ways these are sometimes marketed.

Clearly, a lot of dividends are being announced these days by funds - more specifically, equity funds - that have lately done well for themselves. In recent times, the list has included the likes of HSBC Mutual Fund, LIC Mutual Fund, Principal Mutual Fund and Sundaram Mutual Fund.

These have all followed separate strategies in informing the world that their dividends are coming.

"Why are dividends so important suddenly?," you may ask.

The point is, a section of the investor fraternity is known to be keenly watching out for news on pay-outs. It is not that these are a completely novel or innovative tool. On the contrary, dividends (and the manner in which they were often declared) had not long ago attracted a lot of special interest, especially so in the context of what was commonly described as `dividend stripping'.

As things stand, fund houses stress on a few important pointers when they refer to their forthcoming dividends, depending of course on the scheme in question. Some of them talk about the speed at which they have rewarded unit holders. Some specifically mention their tax-free status. Most furnish a table featuring past dividends, record dates and pay-out rates.

Take, for instance, HSBC MF and the "seventh dividend" that has been recently proposed by HSBC Equity Fund. The fund has not only announced the record date in advance, but also underlined the fact that the cumulative dividend declared so far (since inception in late 2002) is 100 per cent already. Additionally, some key details about the fund are thrown in, including particulars such as its investment objective and corpus size.

HSBC MF, one must clarify at this stage, is not alone in this regard. A lot of others - actually, most of them - do exactly this in one form or other. Investors, fund circles point out, probably need all such information in order to take a decision. They would rather see it right before their eyes, preferably in print, presented in a smart manner by the asset management company.

A few players are also known to be simultaneously declaring a string of payouts pertaining to several schemes. Sundaram MF did this recently when it lined up four of its funds (Tax Saver, Growth, India Leadership and SMILE) along with the probable rates. All of this in a matter of a fortnight or so.

On another front, funds such as Birla Dividend Yield Plus have gone ahead to declare dividends with remarkable regularity. This scheme, which actually holds a diversified portfolio of companies carrying high dividend yields, is known to have given its unit holders quite a handful so far - about 10 payouts starting from mid-2003.

Are these things prompting you to prefer dividend options to growth? Do check out your exact requirements and objectives before you plunge right in. Additionally, remember two golden rules. One, dividend distribution is not assured; it will depend on the kind of surplus that is available for distribution. Two, the net asset value of a scheme will decline after payment of dividend to the extent of the payout.

Feedback may be sent to nilanjan@thehindu.co.in

The decision to invest should not be based on the market or index levels; rather it should be done on the basis of the economic and corporate fundamentals and a careful analysis of the individual's risk profile, financial goals and time horizon.

Franklin Templeton Mutual Fund

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