Steps in to give fair idea of MF returns to investors

Market regulator, the Securities and Exchange Board of India (Sebi) has asked mutual fund (MF) 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.

Stepping in to make mutual funds more investor- friendly, Sebi, in a letter sent to the fund houses, has directed them to disclose to investors the dividend in the form of Rs per unit in their future communications and advertisements. Industry players said Sebi’s move is aimed at stopping mis-selling of products, as many fund houses glorify the percentage of dividend payout to attract new investors.

The market regulator has also made it mandatory for fund houses to benchmark their returns against the stock market barometer Sensex and Nifty.

Currently, the fund houses benchmark their schemes against any index of the sector in which they invest. “This is done to give the investors a fair idea about their returns vis-a-vis the returns from the stock market. Setting one particular benchmark will help investors gauge performance of funds better, rather than rating the returns against different indices,” a fund manager said.

According to market players, Sebi’s move to make MFs declare dividends in rupee terms is aimed at making the actual dividend paid transparent.

Suppose a fund house declares a dividend of 100 per cent. Although the figure seems quite hefty, it actually works out to Rs 10, if the face value of a unit is Rs 10. This may be quite less, if compared to the net asset value of a unit, which might have gone up to Rs 150.

“Sebi has been mulling the idea for quite some time now to make dividends transparent. This is a superior way of revelation and a good way to inform them about the actual dividend yield,” Value Research Chief Executive Officer Dhirendra Kumar said.

“The move by Sebi is to ensure that fund houses do not roll out dividend from past profit,” Mirae Asset Global Investments (India) Head - Equity Gopal Agrawal said.

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 AMCs will have to put up the data for the bygone fiscal by June 30, 2010, and for each new fiscal within two month of the close of the financial year.

Sources also said the market regulator is mulling to make fund houses disclose NAVs after deducting dividend.

Announcing returns ex-dividend would give a better view of the fund’s performance, fund managers said.