How do MFs account for dividends received from the companies whose shares they hold in the portfolio? Assuming such amounts add to AUM, how do such amounts get reflected in NAVs?
The way I understand is as follows:-
A is an AMC which has a MF consisting of 50 stocks. Assuming during the year 25 declare dividends, this amount is given by the company to the AMC . The AMC will then apply this money for their expenses and the balance will be used to buy additional stocks as per the mandate of the MF.
What happens is assuming your NAV was 25 on 20.02.2021. Assuming all other things remain unchanged and all of the 25 companies declare dividends on the same day amounting to 1 crore.
Amc will buy shares using this money. Which eventually result in your NAV increasing to 30.
The issue is since this is so dynamic, we do not come to know exactly that the NAV has changed due to dividends.
Also note it is not necessary that the Amc should buy shares, even cash balance held is treated as a part of the Mf and your NAV will include this as well.
Not an expert but this is my understanding.