Debt funds default on dividend payouts

In the last few months, a large number of debt schemes have skipped dividend payouts to investors. Besides some monthly income plans (MIPs), a host of short- and long-term income schemes and liquid funds have defaulted on their quarterly, weekly, daily and monthly payouts.

For instance, DBS Chola’s floating rate short-term plan (a daily dividend option) has not declared any dividend since September 22. Bharti AXA Income Regular (a monthly dividend fund) paid its last dividend on December 26.

Similarly, out of 810 debt schemes, excluding interval plans and fixed maturity plans (FMPs), 101 schemes have not announced dividends, according to Value Research, a mutual fund analysis firm. And out of 41 schemes with a fortnightly dividend option, 17 have not declared dividends.
 

SKIPPING GAME
Frequency	Total  no of schemes	Schemes that have skipped dividends
Daily	209	8
Weekly	210	26
Fortnightly	41	17
Monthly	208	40
Quarterly	142	10

Mutual fund analysts attribute this to the volatility in the debt markets over the last two months. Saurabh Nanavati, chief executive officer, Religare Asset Management Company (AMC), said, “In the last three months, many debt funds found themselves in trouble due to the rise in the 10-year government securities’ yield. In such a scenario, the funds will not be in a position to distribute dividends on a regular basis as they are not generating income.”

For instance, medium-term (three years) debt funds posted returns of -1.55 per cent and gilt funds’ posted -0.07 per cent returns. Short-term (less than a year) debt funds’ returns were marginally higher at 1.67 per cent, while fixed maturity plans returned 2.13 per cent.

Dhirendra Kumar, chief executive officer, Value Research, said, “The debt funds are going through a turbulent phase. Their returns have been quite nominal, making it difficult for them to make regular dividend payments.”

While the net asset values (NAVs) of some of these funds have increased, many schemes have not shown any growth in their NAVs. Market experts say that non-payment of dividend is justified, in case of a fall in NAV.

“It is true that there has been a marginal increase in NAV for some funds, but it all depends on net realisability of gains,” said the fund manager of a leading fund house.