SEBI modifies the accounting policies which would be followed for determining distributable surplus and accounting the sale and repurchase of units in the books of the Mutual Fund. SEBI mandates that when units are sold, and sale price (NAV) is higher than face value of the unit, a portion of sale price that represents realized gains shall be credited to an Equalization Reserve Account and which can be used to pay dividend. The same would be communicated to the investor that, under the dividend option of a Mutual Fund Scheme, a certain portion of his capital (Equalization Reserve) can be distributed as dividend.
The modification will come into effect from April 01, 2021.
In addition based on the recommendations of Mutual Funds Advisory Committee (MFAC) the scheme of mutual fund would be required to name/ rename the dividend options as following :-
|Option / Plan||Name|
|Dividend Payout||Payout of Income Distribution cum capital withdrawal
|Dividend Re -investment||Reinvestment of Income Distribution cum capital withdrawal
|Dividend Transfer Plan||Transfer of Income Distribution cum capital withdrawal
SEBI instructs to disclose the amounts that can be distributed out of investor capital (Equalization Reserve), which is part of the sale price that represents realized gains in the offer documents. Furthermore, ACM would be required to ensure that the said disclosure is made to investors at the time of subscription of such options/ plans.
SEBI directs AMC to ensure that whenever distributable surplus is distributed, a clear segregation between income distribution (appreciation on NAV) and capital distribution (Equalization Reserve) should be suitably disclosed in the Consolidated Account Statement provided to investors as required under Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996 and SEBI Circular No. CIR/MRD/ DP/ 31/2014 dated November 12, 2014.