Sebi directive of April 1 may put the brakes on MF dividends in FY22

Operational and compliance challenges foreseen for fund houses in deducting tax at source, resulting in possible TDS mismatches and disputes with investors

The Securities and Exchange Board of India's (Sebi’s) dividend diktat that came into effect from April 1 may compel fund houses to declare dividends less frequently or eschew such declarations altogether.

The new norms require dividends doled out by fund houses to be segregated as income distribution (appreciation in net asset value, or NAV) and capital distribution (equalisation reserve) in the consolidated income statement. This can result in operational and compliance challenges for fund houses in deducting tax at source (TDS), resulting in possible TDS mismatches and disputes with investors.

"As things stand, one can expect dividend declarations to reduce substantially. We