Alpha on Mutual Funds: Dividends not to be considered

Globally MFs do not show Alpha by taking into account the Dividends generated on their Investments. Normally every Mutual Fund generates 1.50%-2% dividends and such dividends are taken into account while calculating Alpha in India. Hence Alpha always looks higher for most of the Mutual Funds which gives the investor an impression that the Fund Manager has quite effectively managed such Mutual fund and has generated higher return than the benchmark. However SEBI has asked such Mutual Funds not to consider such Dividend returns while calculating Alpha.

Alpha is one of the performance measuring tools about the effectiveness and efficiency in handling the funds by the Fund Managers in generating the excess returns.