Market regulator SEBI has asked the mutual fund (MF) houses to submit reports, pertaining to compliance with a recent rule that dividends be paid only from realised gains and not premium income, by June 17.
“The SEBI has directed mutual funds to pay dividends only from realised gains and asked them to submit a compliance report on the same by June 17,” sources in the fund houses said. Fund houses, which used to dole out handsome dividends to attract new investors, are now concerned that the move will lessen investors’ interest in MFs.
Currently, if an investor buys a unit at its net asset value of Rs 100 by paying a premium of Rs 90 over the face value of Rs 10, dividends would be paid from the premium amount of Rs 90. This practice is tantamount to paying back unit-holders from their own money.
Under the new rules, the SEBI has said that dividends should be paid to investors only when the NAV rises above Rs 100. If the NAV rises from Rs 100 to Rs 120, in the event of gains realised from markets, the fund houses can use Rs 20 to distribute dividends.
“This is done to ensure that the fund houses pay dividends from the actual gains earned from business and that new investors do not get dividends from the premium amount paid,” Value Research Chief Executive, Mr Dhirendra Kumar said.
The new norm would hurt most MFs and distributors as they have earned fees in the past by luring investors, mainly from the higher strata of society, into equity schemes for dividends.
Currently, some fund houses pay dividends from the premium amount and they are not sure whether the rule would be changed with retrospective effect, sources said.
The market regulator is trying to make MFs more investor-friendly. In this regard, it has also asked fund houses to disclose their dividend payouts in rupee terms, instead of percentage-wise. It has also asked MFs to benchmark returns on investment against the Sensex and Nifty, instead of sectoral indices.
In order to increase the accountability of fund houses, the market regulator had, last month, asked MFs to disclose the details of investor complaints on their websites as well as annual reports.
Now, all asset management companies will have to put up data for the bygone fiscal by June 30, 2010, and for each new fiscal within two months of the close of the financial year.