The record date for the dividend payout is July 30 which means that all investors registered with the dividend plan as on July 30 will earn tax-free income of 35 per cent. This is the second dividend from Bluechip. The first payout at 20 per cent was made in January, 1997, when the scheme was rolled-over and converted into an open-end fund.

``We plan to aggressively market the fund this month and target a corpus of Rs 50 crore against the existing Rs 20 crore,'' said Vivek Reddy, chief executive, Kothari Pioneer Mutual Fund.

The trend to declare dividends has caught on after the recent budget made dividend payout from open-end equity funds tax-free. Bluechip is the fourth equity fund to announce a payoutafter UTI's Masterplus (12.5 per cent), DSPML Equity Fund (20 per cent) and Prudential-ICICI Growth Plan (18 per cent).

The Bluechip fund from Kothari Pioneer introduced the dividend option in June this year. The dividend option also offers a dividend reinvestment plan for investors who do not want to receive income. The 35 per cent payout will be reinvested which means that these investors will be allotted extra units in proportion to the earned income. After the dividend is adjusted, Bluechip will have two NAVs - one for the dividend option and other for the growth option. If the dividend was to be adjsuted on the July 5 NAV, the dividend-adjusted NAV will be Rs 24.41.

``We plan to declare a dividend every six months and intend to bring down the NAV to around par levels. Bluechip is concentrated in 25-30 stocks and the investment philosophy is to pick up fundamentally good companies across-the-board and not to stick to a particular approach,'' elaborated Reddy.

While Bluechip carries an entry load of2 per cent, the AMC has put an exit load of 2.5 per cent to prevent dividend stripping. ``We have to take care of interests of our long-term investors,'' said Reddy.

Despite the load, the fund provides an excellent opportunity for corporates and individuals alike to exit after earning a tax-free dividend. If an investor were to put Rs 5000 in the fund at NAV of Rs 28, he will get 175 units after accounting for the entry load. The dividend will be Rs 612.5, which gives a tax-free yield of 12.25 per cent in less than a month. ``while a part of your income becomes tax-free, your exit at dividend adjusted NAV will lead to a marginal loss which can be offset against future capital gains,'' said an analyst. If the market is in a bull orbit, investors can even can stay put for a while to minimise losses.

Bluechip has a size of Rs 19.43 crore as on June 30 with a NAV of Rs 27.45. This gives a unit capital of Rs 7.07 crore. If half of the investors opt for a dividend, the outflow is likely to be in the region ofRs 1.2 crore.While information technology continues to be the top sector in the fund with an allocation of 23.64 per cent, the fund has reduced exposure to the three growth sectors while it has bought value stocks.