Birla Sunlife MF, HDFC MF, Reliance MF and Franklin Templeton offer payouts to retain investors

MUMBAI: Fund houses are attempting to woo flighty investors by offering handsome dividends, with the market trading flat over the past one year. Fund houses such as Birla Sunlife Mutual Fund, HDFC MF , Reliance and Franklin Templeton have announced dividends ranging from 15% to 20%, in an effort to incentivise investors and persuade them to retain money in existing schemes.

Much more than the current market, it is the year-ago (2009-2010 ) market rally that is helping mutual funds to dole out higher dividends to investors. The ' dividend cushion' that funds created in 2009-2010 - when the stock market more than doubled - is helping fund managers pay dividends in 2010-2011, when the benchmark Sensex returned just over 1.4%.

"Even though the market returned over 100% last year, fund houses distributed just about 20-30% as dividends. Fund houses are paying dividends from the gains they made last year," said the head of investment of a bank-promoted fund house. "Fund managers of highdividend paying funds have managed to shelter their 'dividend cushion' (generated from last year's investments) from market volatility," the investment head said.

Apart from 'dividend cushion', several small-sized fund houses have seen their asset bases widening over the past six months, thanks to regular inflows, especially through systematic investment plans. Asset bases of Axis Mutual and Mirae Asset Investment have grown 44% and 34%, respectively, between April and December 2010. Asset under management or the AUM, of JP Morgan Mutual Fund, DSP Blackrock , Franklin Templeton and Fidelity Mutual Fund rose 15 to 26% during this period.

"Smaller fund houses are paying higher dividends than big-sized asset managers. Fund houses, like Taurus and Sahara Mutual , have paid dividends in the range of 20-25 %. By paying out high dividends, these fund houses expect to attract more investors into their schemes," said Rupesh Bhansali, head-mutual fund research, GEPL Capital.

According to Mr Bhansali, if one takes an year-on-year comparison, dividend yields generated by top fund houses have come down significantly this year. If one compares industry numbers, overall dividend yields have fallen from 25-30 % in 2009 to 17-19 % in 2010, he said.

Fund houses announce dividends to keep retail investors in good spirits. A good dividend payout, especially at a time when the market is choppy will prompt them to stay invested in schemes. A huge dividend payout will also help distributors sell the product more efficiently and bring in more money. "Retail investors, especially elderly investors, expect dividend payouts periodically," Birla Sunlife Mutual Fund CEO A. Balasubramanian.

"We could generate distributable profits from investments made in the first half of current year. The market has turned bearish only since September. We were also able to keep our NAV at higher levels, when the market was trending down," Mr Balasubramanian said.

Conventional fund management wisdom makes it imperative for fund managers to declare dividend as it is one of the few ways to take profits off the table. This is more so in the case of an overheated market, where there are not many good investment opportunities.

Source: EconomicTimes