Fund houses scamper to declare dividends ahead of new regime

Plans to ensure smooth transition of SIP investments move to help investors avail reinvestment benefits

As hundreds of mutual fund plans have become redundant, beginning October 1, following the Securities and Exchange Board of India's (Sebi) move to implement a “one scheme, one plan” policy in the industry, fund houses are declaring dividends in the plans that are being discontinued. This will enable investors to avail of dividend reinvestment benefits during the one-month grace period given for such schemes. The policy was announced earlier this year.

Hundreds of plans according debt and equity schemes are being shut. Accordingly, fresh instalments in special services such systematic investment plans (SIP), systematic transfer plans (STP) and dividend re-investment will be discontinued in these plans by November 1.

Reliance Interval fund- quarterly interval fund series-1, HDFC Quarterly Interval Plan B and Morgan Stanley Multi-Asset Plan A & B are some of the schemes which have declared a dividend ahead of the move. Reliance and HDFC have said they are discontinuing the institutional plan and wholesale plan in these schemes, respectively

RAINING DIVIDENDS

• Multiple plans banned from October 1
   
• No fresh investments allowed in a few hundred plans
   
• Grace period till November 1 for SIP, STP and dividend reinvestments
   
• Funds declaring dividends in discontinued schemes using this window
   
• Funds drawing out strategies to enable smooth transition

More funds are expected to join the dividend bandwagon say experts as dividend declarations under the re-investment plans will not be possible from November 1.

Dividend schemes typically allowed two options for the investor, namely payout and reinvestment. Under the payout option, investor is paid the dividend amount and under the latter, the sum of dividend is reinvested in the same plan.

Fund houses are also drawing out strategies to ensure smooth transition of investors in discontinued plans to the continuing single plans.

Investors may be issued an option form to transfer future subscription of SIPs to the continuing forms. Funds have pointed out to the regulatory officials that a written consent is necessary for such transfers.

V Ramesh, deputy chief executive of the Association of Mutual Funds in India said they had managed to get a one-month window till November 1, which should ensure a smooth transition of SIPs to continuing plans.

Neeraj Choksi, promoter of NJ Invest, one of the largest corporate distributors in the country said, “Not many investors are aware of this move yet. Fund houses are expected to come out with option forms over the next few days after which the process of transferring subscriptions will begin.”

Fund houses are yet to come up with the actual procedures, they are going to follow in transferring investors to continuing plans.

Sanjiv Bajaj, joint managing director, Bajaj Capital, a Delhi-based distributor, said, “Most asset managers are still in the drawing board stage on how to approach this change. They are expected to come up with some approach document in the next few days. It is definitely going to be challenging. We will see a lot of action in the last 15-20 days of this month.”

Choksi said the entire process is likely to take two months to complete.