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Mutual Fund Dividends

Sebi's new rules & the upcoming DTC has changed the way dividends are paid out by funds…

Has Sebi directed AMC’s to payout less dividend in the dividend option of mutual funds? I am a retired person, should I switch my investments to growth?
- K Kannan

For retirees the dividend option of mutual funds is a boon as it provides regular tax free income. Sebi has directed mutual funds to calculate dividends from realized gains and not on pre-defined times each year is correct, which will definitely reduce the dividend payout.

The troubles do not end here; once the direct tax code (DTC) comes into effect from 1 April, 2012, you will not only receive less dividend it will also attract a 5 per cent tax. To counter this development, it is advisable for you to move to the growth option and redeem your holding units to meet your income needs. As these will be long-term capital gains, you would at least not pay tax on the gains. However, make sure that you are not redeeming too much too soon by eroding your capital.

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