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 Rs 28,250 crore under this scheme will, however, continue to accept money in the schemes 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 Prudentials 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.