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What Happens To Your Unclaimed Mutual Fund Dividend?

As you know, Growth and Dividend are the two options available, when investing in a Mutual Fund Scheme.

Unfortunately, many investors choose the Dividend Option; despite the fact that Growth Option is better.

People do not regularly update their bank details and contact information. As such, almost Rs.1000 crores of dividend and maturity amount is lying unclaimed with the mutual fund companies.

In this connection, SEBI (Securities and Exchange Board of India) has recently announced certain modifications to its earlier guidelines on Treatment of unclaimed redemption and dividend amounts.

These revisions are discussed below.


1. How to deploy the unclaimed dividends

At present, the unclaimed dividends and redemption proceeds are permitted to be deployed only in the call-money or money-market instruments.

Henceforth, Asset Management Companies (AMCs) will be allowed to float separate Liquid / Money Market Mutual Fund Schemes, especially for the purpose of investing such unclaimed amounts.

Two conditions have been stipulated for such special plans (for parking the unclaimed sums of money), viz.
a) AMCs will not be allowed to levy any Exit Load. 
b) The Total Expense Ratio shall not exceed 0.50%.

unclaimed-mutual-fund-dividend
Quickly follow-up on your unclaimed mutual fund dividends.

2. How to find the rightful owners of unclaimed dividends

SEBI desires that mutual fund companies should be more pro-active in reaching the rightful owners of such unclaimed money.

Accordingly,
a) List of names and addresses of the investors, who have unclaimed money against their folios, shall be displayed by the AMCs on their websites.

b) A consolidated list of such investors shall also be made available by the Association of Mutual Funds of India (AMFI) on its website. The details will include their address and also the name of the Mutual Fund Company, with whom the amount is lying unclaimed.

c) AMCs and AMFI will have appropriate security measures built in. This is to ensure that the above information can be accessed by the genuine investors only, after providing their right credentials (such as PAN, date of birth, etc.).

d) Both AMFI and the AMCs shall also provide on their respective websites, the forms / documents required to claim the amount; as also the process involved in doing so.

e) As per prevalent practice, AMCs have to periodically send Statement of Accounts and / or the Consolidated Account Statement  to all the investors. This has to follow the prescribed time frame. AMCs should now also include, the details of such unclaimed amounts and the current investment value (after considering the income earned on such amount) in these Account Statements.

By the way, as I repeatedly stated Dividends Are NOT Tax-Free.


3. How to utilize the income earned on unclaimed dividends

When the rightful owners of the unclaimed amount come to collect their money, the AMCs shall pay them
i.  the original unclaimed amount
PLUS
ii. income earned on such amount.

IMPORTANT: This shall be applicable only for the first three years from the due date.

Thereafter,
i.  Investors shall be paid the original amount plus income for three years
ii. Income earned after the third year shall be utilized for Investor Education initiatives.

These modified guidelines, on unclaimed redemption and dividend amounts, shall be effective from April 1, 2016.

If you too have any unclaimed money, lying with a mutual fund company, make sure to claim it at the earliest.

Secondly, switch your mutual fund investments from the Dividend Option to the Growth Option... of course, again at the earliest.

Further, this is how you can Slash Mutual Fund Dividend Tax With Growth Option.

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