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