Mutual fund houses asked to stop dividend re-investments in tax-saving scheme

NEW DELHI: Mutual fund houses have been asked not to reinvest dividend amounts under their respective 'Equity Linked Saving Scheme (ELSS)' products.

So far, the fund houses had been providing growth option and dividend option under ELSS products, including 'Dividend Reinvestment Sub-Option' wherein the dividend amount re-invested is subject to lock-in period of three years from the date of re-investment.

The directives to discontinue re-investment dividend re-investment option was given by Association of Mutual Funds of India ( AMFI), sources said today.

"The matter was discussed by Sebi with AMFI and was also examined by AMFI Committee on Operations and Compliance, which has recommended that the Dividend Reinvestment Sub-Option under Equity Linked Saving Scheme (ELSS) products be withdrawn to avoid any confusion among investors," sources said.

According to the new guidelines, investors who do not wish to receive dividend pay-out could opt for 'Dividend Transfer Plan (DTP)', wherein the dividend amount could be re-invested in any other open ended scheme of the Mutual Fund.

As per sources, some of the Asset Management Companies (AMCs) have already implemented the latest norms.

Mutual funds, which have not complied with the norms, have been requested to implement the same by issuing an addendum to their existing Scheme Information Document (SID) at the earliest.