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THERE is constant news flow about how mutual funds are declaring dividends, and often, it becomes difficult for the investor to actually keep track of what is actually happening. Instead of feeling confused and not knowing how things are proceeding around them, investors could easily ensure that they are on top of all developments that are taking place.
This can be done by ensuring that they have done their homework well and are able to predict what will actually happen at specific points of time. Here are a few ways in which this situation will play out when it comes to the time period of dividends.
Regular annual dividend: There are several funds that declare dividends at regular intervals. This helps the investor to be aware of when a particular fund declares dividend. For this, the investor has to study past history and know when the fund will actually declare dividends.
This is the easiest scenario because there is an element of predictability built into it, so while the investor might not know the amount of dividend, they will know when the dividend is coming.
Specific scheme: There are certain types of schemes where the dividend declared is already present as a basic part of the entire investment option, so there is very little that the investor needs to do except select the right option. Take for example several debt-oriented funds where there might be an option of quarterly and annual dividends. In this case, selection of the option will ensure a specific time period when the dividend will be received. For many funds, there might just be an annual option, but, whatever the situation, the situation is such that the time period for the dividend is known.
Default dividend: Often, the nature of the fund actually determines when the dividend is paid, and hence, there is not much that the investor has to think about.
Take the case of fixed maturity plans and the dividend option that they might offer.
If the time period of the fund is around 180 days and the dividend option is chosen, then the amount of the dividend will be paid at the time of maturity of the fund.
When this is the case, then, understanding the situation will give the investor a proper estimate of when the dividend can be expected. In such cases, where the net asset value of the fund is also known, it is possible for the investor to get an estimate of the dividend that will be received from the fund.
Non-regularity dividends: There will also be several funds where there will not be any regularity of dividends that will be received, and, in these cases, there is difficulty in estimating when the dividend will actually be received. However, there is a way by which even this can
be estimated and this can be done by reviewing when the fund actually has declared dividends in the past and what might be revealed is that during good times, there will be a slew of dividend declarations when the amount available for distribution is present. In this case, market conditions in connection with equity funds will enable the investor to make a good guess on what is expected.
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