Under dividend option, certain portion of the capital can be distributed as dividend
College mates discuss money, politics and life over a video call every Sunday.
Amar: Hey. Is Anthony logging in today?
Akbar: That’s odd. You looking for Anthony? Is he your bestie or me?
Amar: No yaar, I am very confused with new terms related to dividend options in mutual funds. So, thought to ask our veteran mutual fund investor Anthony Gonsalves.
Akbar: Oh. My father-in-law has a lot of money in dividend plans of funds. So, even I am all ears.
Anthony: Mitron, you are not alone. Ever since the names of dividend options of the MF schemes changed from April 1, most people are quite confused.
Amar: So, it is just a name change, is it?
Anthony: No. There is an underlying reason behind the change. The dividend now has to be segregated. Thus, whenever a surplus is distributed under a dividend plan, fund-houses are required to clearly segregate and disclose (i) income distribution and (ii) capital distribution in the consolidated account statement (CAS) provided to the investors.
Amar: Okay, I get that. Going back to the name change, what are the new names?
Anthony: Easy, big guy. You now know that the divided has to be segregated. Hence, you will be able to relate to the new names better. Dividend Payout has become Payout of Income Distribution cum Capital Withdrawal (IDCW).
Similarly, Dividend Re-investment plan is now known as Reinvestment of Income Distribution cum Capital Withdrawal option. And, Dividend Transfer plan has become Transfer of Income Distribution cum Capital Withdrawal plan.
Akbar: But, why use so much jargon?
Anthony: Fair point. The regulatory intent is to communicate to investors that, under dividend option of a mutual fund scheme, certain portion of the capital can be distributed as dividend.
Amar: Okie. How will the above naming convention be reflected in statements?
Anthony: You can see the changes in the CAS, the normal account statement, the capital gain statement, AMC website, RTA website, etc.
You may find them as — scheme name followed by acronyms such as IDCW, IDCW Payout, IDCW Reinvestment and IDCW Transfer.
Akbar: One last question. Any income-tax implications for MF investors because of these changes?
Anthony: Currently, dividends distributed by a mutual fund are taxable as per applicable tax rates. That doesn’t change.
For the impact, if any, of the revised disclosures on taxation in the hands of investors, I think you should consult your tax advisor.
Amar: Thanks, Anthony. Will do that. Gotta go, Akbar.