In equity mutual funds (MFs), is there a way to know how dividends from stocks are used?
--Remy Sakhija
Fund managers of equity MFs invest by buying shares of companies from the stock market. These companies could, periodically, declare dividends for share holders, i.e. distribute a portion of the profits made by the company. This money comes into the cash account of the fund. This same account also holds the money accrued when the fund manager sells some shares from the portfolio. The money in this account is available for the fund manager to invest in the market as and when opportunities arise. The fund manager could also decide to distribute part of this surplus cash as dividends (if there is a dividend option in the scheme) to the unit holders of the fund. So, in summary, the dividends from stock holdings are either held as cash or re-invested in the market in the case of growth schemes, and may, additionally, be distributed as dividends in the case of dividend schemes. If it i...
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