Mutual funds rush to declare dividends ahead of the new tax regimeBudget 2018 brought in a 10% long-term capital gains tax and a 10% dividend distribution tax on equity funds and shares. However, the new tax will only go into effect from 1st April 2018, prompting several funds to rush to declare dividends before  March 31, 2018. 

The list includes both small and large funds as mentioned in the table below (only an indicative list).

Fund Dividend per unit NAV (as of 20th March 2018) Record Date Dividend as % of NAV
DSP Blackrock Equity Fund 16 46.057 8th March 35%
SBI Small and Midcap Fund 9.1 33.0766 9th March 28%
HDFC Equity Fund 5.5 55.784 22nd March 10%
JM Equity (Monthly Dividend) 9.0 20.9264 22nd March 43%
Aditya Birla Sun Life Top 100 2.1 17.050 23rd March 12%

When can mutual funds declare dividends?

Mutual funds are only allowed to declare dividends from ‘realised profits’ or profits made on the ground by selling their assets higher than purchase prices. They cannot declare dividends if they realised losses from selling their assets or by using fresh investor inflows in the fund.

However, the change in tax rules has prompted many funds to realise a larger share of the gains they are sitting on than they would have otherwise.

What happens to NAV?

When a dividend is paid out, the fund’s NAV falls by a corresponding amount. As a result, you have a notional loss on the fund value while the loss has been compensated through the dividend payment.

Many high-value investors who have capital gains can set the gains off against the losses booked by selling the mutual fund units (as its value has declined to the extent the dividend had been paid out). However, if the units are bought within three months prior to the dividend record date, the investor can get tax benefits only if he sells the units after nine months.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at