Legal UpdatesSecurity Laws

SEBI modifies Dividend options incase of mutual fund schemes

SEBI Updates

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

option

Dividend Re -investment Reinvestment   of Income Distribution cum capital withdrawal

option

Dividend Transfer Plan Transfer   of Income   Distribution cum capital withdrawal

plan

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. 

 

 

 

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