The Securities and Exchange Board of India vide its notification dated 5th October 2020 has directed mutual funds to rename the dividend options to dividend payout, dividend Re-investment and Dividend Transfer Plan and it has also directed to clearly communicate to the investor that, under dividend option of a Mutual Fund Scheme, certain portion of his capital (Equalization Reserve) can be distributed as dividend.
According to recommendations of the Mutual Funds Advisory Committee (MFAC), sebi has directed all the existing and proposed mutual funds schemes to name or rename the dividend options.
Offer documents shall clearly disclose that the amounts can be distributed out of investor’s capital (equalization reserve), which is part of sale price that represents realized gains.
Further, AMCs shall ensure that the said disclosure is made to investors at the time of subscription of such options/plans and the AMCs shall ensure that whenever distributable surplus is distributed, clear segregation between income distribution (appreciation on NAV) and capital distribution (Equalization Reserve) shall be suitably disclosed in the Consolidated Account Statement provided to investors as required under Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996.
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