We invite you to declare your own Dividend!

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 Posted by Quantum on Friday, July 09, 2010

Quantum Mutual Fund is indeed a different mutual fund.

Not only are we the only fund house to refuse to pay distributor commissions and be party to the incorrect and opaque practices which, ultimately, can hurt investors…

And not only are we the only fund house to cut your expense ratio to 1.5% for the Quantum Long Term Equity Fund to give you the benefit of the growth in the size of the Fund. (Note that this is unlike others - whose size is over 20 times our size – and are still showing that they need 2% of your money every year to run their funds; presumably so that they can continue to pay their distributors to ensure they get to keep your money!)

But we also had this view: we don’t like to pay dividends.

A few investors have asked us why we don’t declare a dividend. “Your NAV has nearly doubled since launch,” they say with praise, then they question, “But where is our dividend?”

By definition, dividends are transfers of a portion of profit earned by the company to its shareholders/investors.

The company can choose to do either of the following with its profit earnings:
1. Plow it back into the company to fund growth;
2. Use it to repurchase its own shares, increasing the value of each share still on; the market. (Making the slice of the pie a larger one);
3. Issue bonus shares out of this profit to investors;  
4. Distribute these profits to investors as dividends;

Let's focus on the last option, paying dividends (or not).

Why should we force you to take money back?
Well, there is a problem with declaring a dividend: what if you don’t need the money, or need more of it, or need less of it?

A mutual fund gives one dividend to all its investors, it cannot give you a tailor made payout for exactly the amount of money you need. So, giving a dividend may not solve your problem.

For example, what if you need Rs 10,000 for your monthly expenditures and Quantum Long Term Equity Fund (QLTEF) was your only mutual fund investment? Let’s assume that the total dividend paid by QLTEF to you was Rs 7,000, this means you would still need to figure out how to get the balance Rs 3,000 from other sources,

But what if you needed Rs 10,000 and you get Rs 15,000 as dividends? What would you end up doing with the surplus Rs 5,000? Chances are that you would spend it on something that you didn’t really need. Or you would face the problem of re-investment risk – not knowing what to do with it. You may place it back in Quantum Long Term Equity Fund – in which case there was a transaction and administration cost that you incurred in getting it and re-investing it! Or you may do something silly with it – something that you would never have considered if it was still “stuck” in QLTEF.

And, finally, under a third scenario what if you don’t need any money every month, (or with any known regularity) and QLTEF issues you a dividend? What do you do then? Again, you would spend it or face the risk of re-investing this “surplus”!

Yes, this is why we don’t like the concept of paying dividends; we leave that decision to you.

Another fact is that, for regular dividends to be paid out, a certain number of holdings must be sold off in order to raise the money. Now this sell off might not be at the most appropriate timing, or rather might not be when the valuations for the stocks were at their optimum levels – thus losing out on a better opportunity.

Be nice to yourself: Give yourself a dividend whenever you want to!
But that does not stop you from paying a dividend to yourself for any amount that you wish, whenever you wish.

You have a family occasion coming up and need money, don’t depend on your mutual fund to pay out your dividend; redeem as many units as would provide you the required amount and effectively pay yourself a handsome “dividend”.

The question you need to ask yourself here is – Would you rather invest in a fund that pays out dividend and dilutes your NAV or would you rather let the fund manage its NAV that in turn increases the value of your overall investment, and pay yourself a dividend whenever you require one?
 
Yes, we have not paid out dividends since our Inception in March, 2006, but, (hopefully), we do know how to manage your money, and manage it well – our NAV has nearly doubled, and our expense ratios have moved down – ensuring you of even better returns.
See what Value Research’s magazine - Mutual Fund Insights - had to say about Quantum Long Term Equity Fund .

Why not try a Systematic Withdrawal Plan (SWP) instead?
A Systematic Withdrawal Plan is a more convenient way to receive a regular stream of payouts in a defined frequency. This facility allows you to redeem specified amounts from your fund at a pre-defined frequency. You can choose to regularly withdraw either a fixed sum or even just the appreciation on your investment, which will not disturb your capital contribution. (At present this feature is available for the Quantum Tax Saving Fund and the Quantum Equity Fund of Funds, and will soon be available to Quantum Long Term Equity Investors as well.)

Here’s a thought, companies that pay dividends are not necessarily the most efficient investors of the capital entrusted to them.  By giving the investor a dividend they may be effectively saying, "Take the money because you probably know what to do with it and we have no use of your money."

And, that is something you are not likely to hear from Quantum Mutual Fund.

We will simply focus on investing your savings in a sensible way, focusing on the long term and on the need to identify and minimise risks that we take to give you a chance to earn long term returns.  

Please contact us on Info@QuantumAMC.com if you would like any more information on Quantum Long Term Equity Fund.

With regards,

Team Quantum

Investment Objective: Quantum Long-Term Equity Fund (QLTEF): To achieve long-term capital appreciation by investing primarily in shares of companies that will typically be included in the BSE 200 Index and are in a position to benefit from the anticipated growth and development of the Indian economy and its markets. Quantum Liquid Fund (QLF) : To provide optimal returns with low to moderate levels of risk and high liquidity through judicious investments in money market and debt instruments. Quantum Gold Fund’s (QGF) : To generate returns that are in line with the performance of gold and gold related instruments, subject to tracking errors. However, investment in gold related instruments will be made if and when SEBI permits mutual funds to invest in gold related instruments. The Scheme is designed to provide returns that before expenses, closely correspond to the returns provided by gold. Quantum Index Fund (QIF) : To invest in stocks of companies comprising the S & P CNX Nifty Index and endeavor to achieve returns equivalent to the  Nifty by “Passive” Investment. The scheme will be managed by replicating the Index in the same weightage as in the S&P CNX Nifty Index with the intention of minimizing the performance differences between the scheme and the S&P CNX Nifty Index in capital terms, subject to market liquidity, costs of trading, management expenses and other factors which may cause tracking error. Quantum Tax Saving Fund (QTSF) : To achieve long term capital appreciation by investing primarily in shares of companies that will typically be included in the BSE 200 Index and are in a position to benefit from the anticipated growth and development of the Indian economy and its markets. Quantum Equity Fund of Funds (QEFOF) : To generate long-term capital appreciation by investing in a portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI. There can be no assurance of positive returns from following the stated investment strategy. Entry Load: Not applicable. Exit Load: QLTEF : On repurchase/redemption/switch-out within 6 months of allotment- 4%, after 6 months but within 12 months of allotment- 3%, after 12 months but within 18 months of allotment - 2%, after 18 months but within 24 months of allotment - 1%, after 24 months of allotment - Nil. QLF : Nil; QGF: Nil in case of Authorised Participants; 0.5% in case of Eligible Investors. QIF : Nil; QTSF : Nil; QEFOF: On repurchase/redemption/switch-out within 1 year from the date of allotment-1.5%. Risk Factors: All Mutual Funds and securities investments are subject to market risks including uncertainty of dividend distributions and the NAV of the schemes may go up or down depending upon the factors and forces affecting the gold and securities markets and there is no assurance or guarantee that the objectives of the scheme will be achieved. Quantum Long-Term Equity Fund, Quantum Liquid Fund, Quantum Gold Fund, Quantum Index Fund, Quantum Tax Saving Fund and Quantum Equity Fund of Funds are the names of the schemes and does not in any manner indicate either the quality of the Schemes, their future prospects or returns. Past performance of the Sponsors and their affiliates / AMC / Mutual Fund and its Scheme(s) do not indicate the future performance of the Scheme of the Mutual Fund. Investors in the Schemes are not being offered any guaranteed / assured returns. The NAV of the units issued under the Schemes may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. The investors are advised to refer to the Scheme Information Documents of QGF and QIF for full text of the ‘Disclaimer Clause of NSE’.  Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882.Sponsors: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and the Investment Manager are incorporated under the Companies Act, 1956. The past performance of the Sponsor / AMC/ Fund has no bearing on the expected performance of the scheme. Mutual Funds investments are subject to market risks. Please read the Scheme Information Document (s) / Key Information Memorandum (s) / Statement of Additional Information  / Addendums carefully before investing. Scheme Information Document(s)  / Key Information Memorandum(s) / Statement of Additional Information can be obtained at any of our Investor Service Centers or at the office of the AMC :- 505, Regent Chambers, 5th Floor, Nariman Point, Mumbai – 400 021 or on AMC website www.QuantumAMC.Com / www.QuantumMF.com