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A Mutual Fund generally offers two plans for every scheme: Dividend and Growth. Under the Dividend plan,

A Mutual Fund generally offers two plans for every scheme: Dividend and Growth. Under the Dividend plan, the fund distributes gains made from investments to investors, from time to time. In the Growth plan, all gains made by the fund are retained by it in the scheme.

An investor has the option of receiving the dividend payment or opting for reinvestment of the dividend amount. In the dividend reinvestment option, the investor gets dividend in the form of units (i.e. dividend declared gets converted into units — reinvested into the same scheme). We discuss some queries investors have on dividends.

What is the Dividend Sweep facility?

This is a facility some Funds offer for some schemes. Under this facility, unit holders can opt to sweep or invest the dividend earned in a scheme into any other open ended scheme.

In any scheme under dividend reinvestment, the dividend amount is reinvested in the same scheme in which dividend was declared.

Under this facility, the dividend is reinvested into another scheme of the Mutual Fund. The Key Information Memorandum contains details of the facility, if available, including minimum amount of dividend for sweep.

I invested Rs 20,000 in a scheme at NAV of Rs 40 and the declared dividend was 50 per cent for the scheme. However, I received Rs 2,500 as dividend. Please explain this.

Please note that dividend is declared at Face Value of the Units, i.e. on Rs 10. If dividend declared is Rs 5 per unit, it would mean it is 50 per cent of the face value of Rs 10. The investment being for 500 units (20000/40), you have received Rs 2,500 at Rs 5 per unit.

I had invested in a tax-saving scheme (ELSS) three years ago and have opted for dividend reinvestment. Dividends have been reinvested every year.

However, I am unable to redeem the reinvested dividends as the Mutual Fund says that the reinvested dividend is still under lock-in. Why is this so?

Every time dividend is reinvested, it is similar to a fresh investment being made by you in the ELSS. For example, if you invested in March 2009 and a dividend was declared and reinvested in March 2010, the reinvested amount would be taken as a fresh investment in March 2010 and the Units would be locked-in for three years.

Every subsequent dividend would thus be locked in. Regarding the reinvested dividend, you can redeem the same after three years from the date of reinvestment.

If you do not wish dividends to be reinvested, you may change the dividend option to payout by giving a simple request letter to the Fund, duly signed by the Unit Holder(s). Please mention the folio number and scheme in your letter requesting the change of dividend option from reinvestment to payout. Once the option is changed, future dividends will be paid out to you.

I have lost track of the dividends declared and received. How can I check the same?

You may request a complete account statement since inception, i.e. since your first purchase in the scheme. The statement will give details of all transactions since inception, including dividends paid out. You may then reconcile with the cheques received or with your bank account for credits received.

If you have not received the same, you may inform the concerned Fund to check if any dividend warrant was returned undelivered or any credit that may not have taken place.

Some Registrars and Funds also have a provision on their Web site to check for dividend warrants returned undelivered in their folios.

Investor may register their IFSC Code in their folios and opt to receive dividends by way of electronic payout to ensure that no dividend cheque is retuned back undelivered to the Fund.

(Contributed by CAMS Viveka, an Investor Education Initiative from CAMS. Views expressed are general practices in the MF industry and may vary on a case-to-case basis.)

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