Dividend payout in Direct vs. Regular plans – which one pays more?

Dividend payout in Direct vs. Regular plans – which one pays more?
April 30 09:34 2018 Print This Article

There are so many investors who have just started to invest in the mutual fund plans. As we all know that there are two types of plans for mutual funds, i.e. regular mutual fund plans and direct mutual fund plans. It is very important that the investor understands the difference between direct and regular mutual fund plans. There are many other factors too which are important to be understood, such as the dividend payout.

The dividend payout ratio is basically the ratio calculated between the amount which is paid to the shareholders and the total income of the company. It is calculated by a certain formula and it differs according to the mutual fund plan taken by the investor. Now the question put ups that which mutual fund plan is better in terms of dividend payout. It is important to understand that an investor should not purchase a mutual fund plan on the basis of dividend payout only as there are so many other factors too on the basis of which you can choose between direct plan mutual funds and regular plan mutual funds.

Now that we know what a dividend payout is, it is important to know that which mutual fund plan have more of them. Many investors think that the dividend payout is similar in all types of mutual fund plans but it is not true. In case of the direct mutual fund plan, the dividend payout will be different from those who have invested in the regular plan. Usually, the dividend payout in a direct plan is smaller than that of the regular plan. If we go through all these years mutual fund investment history, then we will find that there have been so many cases where the direct plan mutual funds have led to smaller dividend payout as compared to the regular plan mutual fund schemes.

The direct plan mutual funds are regulated by AMC’s and other mutual fund houses. They have shown the studies which prove that direct plan mutual funds are more into smaller dividend payouts. There are many reasons behind this such as the fact that the overall expense ratio is lower in the direct plan mutual funds as compared to the regular plan mutual funds. Another factor that is responsible for this difference in dividend payout is that the direct plan mutual funds have higher Net Asset Value (NAV) as compared to the regular plan mutual funds.

Some people believe that the fact that the dividend payout is lesser in the direct plan mutual funds then regular funds is due to some plot made by the fund houses in order to make them less attractive but it is not true. The question arises many times that the direct plan mutual funds are known for providing better returns as compared to the regular plans due to their no commission policy and lower expense ratio then why is the dividend ratio lower in a direct plan? The answer to this question is that in actual the direct plan mutual fund schemes providing mutual fund houses are trying to touch the line of the SEBI, the market regulator on the distribution of dividend. This is a fact and the market conditions are the reason behind it.

Although there is no point in considering it as a bad thing because no matter what but the direct plan mutual fund schemes provide a better rate of return as compared to the regular plan mutual fund schemes. It is clear that the dividend payout is smaller in the direct plan mutual fund scheme as compared to the regular plan mutual fund investment scheme.

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Clare Louise
Clare Louise

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