Mumbai: In order to help investors get a clearer picture on returns from their investments, market regulator Securities and Exchange Bureau of India (Sebi) has made it mandatory for the top 500 listed companies to have a dividend distribution policy.
Under this policy, the companies will have to inform their shareholders about how they aim to utilise extra profits and the parameters to be adopted with regard to various classes of shares.
Companies will have to spell out the financial parameters, as well as the various internal and external factors to be considered for declaring dividend. Firms will have to inform the shareholders about how they aim to utilise extra profits and the parameters to be adopted with regard to various classes of shares.
The policy will need to be disclosed by the companies in their annual reports as well as their websites.
The Sebi move comes on the heels of complaints from various investor groups that the companies were not distributing their extra profits among shareholders despite having huge cash on the books.
The Sebi board had earlier approved the proposal and the new norms have been notified.
Though the new norms will not force the companies to pay dividend, it will help investors get a clearer picture on returns from their investments in such listed firms and also identify stocks matching their investment objectives.
To start with, the top 500 companies in terms of market capitalisation (as on March 31 of every financial year) will need to frame the dividend distribution policy while the same may apply to other companies at a later date.
“Listed entities other than top 500 listed entities based on market capitalisation may disclose their dividend distribution policies on a voluntary basis in their annual reports and on their websites,” Sebi said.
According to experts, the move is expected to help investors identify and understand the potential of returns on investments made in a company.
The current regulations require the companies to disclose their dividend policy as also the rate of dividend, if any, for the past five financial years.
However, this was not mandatory as of now to have a dividend policy although some listed companies have formulated such policies on their own.
