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Wednesday, May 19, 2010

Dividend Equilization Fund

It is created for maintaining equal dividend over years. In other words, sometime a company may not have sufficient profit to distribute as dividend. At that time, the company can utilize such fund.

Advantages:
  1. It helps to distribute same rate of dividend even there is loss in the business.
  2. Due to the uniformity of dividend over years, the market value of shares does not fluctuate abnormally.
Disadvantages:
  1. Creation of dividend equilization fund reduces the amount of divisible profit.
  2. Small organization having poor financial position may not be able to create such fund. 

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