ICICI Pru Stops Fresh Flows into Key Div Plan

BALANCED AD­VAN­TAGE FUND Its largest scheme will, how­ever, con­tinue to ac­cept in­vest­ments in growth op­tion

The Economic Times - - Markets: Beating Volatility - Prashant.Ma­hesh @times­group.com

Mum­bai: ICICI Pru­den­tial Mu­tual Fund has dis­con­tin­ued fresh in­vest­ments in the monthly div­i­dend op­tion of its largest scheme — ICICI Pru­den­tial Balanced Ad­van­tage Fund — from De­cem­ber 19.

The fund house that man­ages ₹ 28,250 crore un­der this scheme will, how­ever, con­tinue to ac­cept money in the scheme’s growth op­tion.

A spokesper­son for ICICI Pru­den­tial Mu­tual Fund did not com­ment.

All ex­ist­ing in­vestors in the monthly div­i­dend op­tion would con­tinue to get the pay­out.

The plan is one of ICICI Pru­den­tial’s best-sell­ing schemes and is the largest in the dy­namic as­set al­lo­ca­tion cat­e­gory.

The fund in­vests in a mix of eq­uity and debt, chang­ing its al­lo­ca­tion be­tween these two as­set classes based on mar­ket val­u­a­tions. When stock val­u­a­tions are high, these funds re­duce ex­po­sure to this as­set class. It uses the price to book value ra­tio of stocks to de­cide its eq­uity al­lo­ca­tion.

As mar­ket volatil­ity in­creases, fund man­agers find it dif­fi­cult to gen­er­ate prof­its and pay div­i­dends. Over the last one year, the fund has re­turned 2%.

“Div­i­dend is to be paid out of booked prof­its from the scheme as per reg­u­la­tory guide­lines. If mar­kets re­main volatile, it is dif­fi­cult for a scheme to book prof­its and pay reg­u­lar monthly div­i­dend,” says Ru­pesh Bhansali, head (dis­tri­bu­tion), GEPL Cap­i­tal.

Be­sides this, dis­trib­u­tors point that due to new tax laws, in­vestors have to pay a div­i­dend dis­tri­bu­tion tax of 10%, which re­duces in­vestor in­ter­est.

Many in­vestors have poured money into schemes that paid a monthly div­i­dend be­tween 2015 and 2018 to earn reg­u­lar in­comes. Such schemes paid any­where be­tween 8 and 12% div­i­dend. Af­ter April 2018, many dis­trib­u­tors have asked in­vestors to shift to sys­tem­atic with­drawal plans (SWP), wherein they can with­draw a fixed amount every month, and avoid pay­ing the div­i­dend dis­tri­bu­tion tax.

The fund house man­ages 28,250 crore un­der this scheme

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