How do I calculate the actual dividend amount for a monthly dividend payout mutual fund?

Question

I'm trying to compare the performance of monthly income plan at banks and in mutual fund, not considering any other risks and hoping the performance stays steady. An example for my understanding:

• The N.A.V. price per unit for a mutual fund on 1st April 2016 was 14 credits.
• It has a face value of 10 credits per unit.
• It has declared on an average 0.0451 credits per unit dividend for each month of last year.
• Expense ratio for the fund is 1.42%.
• This is not an exchange traded fund.

So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right?

Whereas for a MIP at bank where the interest rate was last year 6.5% per annum, the same 14000 credit would earn a monthly interest of = (14000 × (6.5 ÷ 100)) ÷ 12 = 75.833 credits.

So am I calculating the dividend correctly? Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme?

Answer 1

In the absence of a country designation where the mutual fund is registered, the question cannot be fully answered.

For US mutual funds, the N.A.V per share is calculated each day after the close of the stock exchanges and all purchase and redemption requests received that day are transacted at this share price. So, the price of the mutual fund shares for April 2016 is not enough information: you need to specify the date more accurately. Your calculation of what you get from the mutual fund is incorrect because in the US, declared mutual fund dividends are net of the expense ratio. If the declared dividend is US$ 0.0451 per share, you get a cash payout of US$ 0.0451 for each share that you own: the expense ratio has already been subtracted before the declared dividend is calculated. The N.A.V. price of the mutual fund also falls by the amount of the per-share dividend (assuming that the price of all the fund assets (e.g. shares of stocks, bonds etc) does not change that day). Thus. if you have opted to re-invest your dividend in the same fund, your holding has the same value as before, but you own more shares of the mutual fund (which have a lower price per share). For exchange-traded funds, the rules are slightly different. In other jurisdictions, the rules might be different too.

Answer 2

So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right?

One would get ((14000 ÷ 14) × 0.0451) = 45.1 is what you would get.
The expenses are not to be factored. Generally if a scheme has less expense ratio, the yield is more. i.e. this has already got factored in 0.0451. If the expense ratio was less, this would have been 0.05 if expense ration would have been more it would have been 0.040.

Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme?

As the MIP as classified as Hybrid funds as they invest around 30% in equities, there is no tax on the income. More so if there is a lock-in of 3 years. In Bank FD, there would be tax applicable as per tax brackets.